14 Technology Law Things About 2014 That I Should Have Written About Over 14 Days Ago.

It’s been over a fortnight (I love saying fortnight) since 2014 expired and every other blogger has penned a recap of something(s) that occurred during 2014. So, it seems appropriate that this little procrastinating blog would get around to that now. So, without further ado (I’m not sure there was any prior ado), here are fourteen law/technology stories about 2014 that I could find without doing too much research. Some of these are important, some are slightly amusing and some are just to get the number up to fourteen. You can make your own assessment.

1. The first Twitter libel ("Twibel") suit went to trial. A former attorney for Courtney Love sued Ms. Love for tweeting that the attorney was “bought off”. The court decided that was not defamatory. You may remember from your law school days about libel “per se”, i.e. if you wrote that someone had committed a crime or immoral acts, was unable to perform their profession, had a “loathsome” disease or was dishonest in business you could recover without proving actual malice or specific injury. It seems to me that about 75% of all tweets fit this definition.

2. The Supreme Court ruled that police must obtain a warrant before searching a cell phone of someone they arrested. Prior to this, police has maintained that a cellphone was like anything else in the possession of an arrestee (e.g. wallet, address book, pocket litter) and consequently no warrant was needed.

3. A coding error was found in OpenSSL, encryption software that was supposed to keep transactions secure. This error, named “Heartbleed”, caused millions of people, companies and sites to have to change their passwords.

4. Bitcoin and other cryptocurrencies continued to have a rocky ride. Executives of Bitcoin companies were arrested for activities through Silk Road (see number 6 below). One of the companies had received funding from the Winklevoss twins. Dedicated readers of this blog will remember our fondness for the Winklevi.

5. Mt. Gox, the largest Bitcoin exchange, filed for bankruptcy. Mt. Gox had somehow lost 774,000 bitcoins (about 6% of all bitcoins in existence) due to theft, technical problems or perhaps merely leaving them out in the rain. Incidentally, Mt. Gox got its name because its original business was operating an exchange for “Magic The Gathering” cards, hence Magic The Gathering Exchange. I mean, what did you expect?

6. The alleged proprietor of Silk Road, Ross Ulbricht, was scheduled for trial. This former resident of Westlake Hills, Austin, Texas had his communication capabilities curtailed while in jail for fear that witnesses would be rubbed out before they could witness. That’s some Corleone stuff, for sure. Now, Mr. Ulbricht is claiming that he was not the masterdude behind the nefarious doings of the Dread Pirate Roberts, but that it was the CEO of Mt. Gox (see 5 above). If you wrote a script like this, no one would use it because it’s too farfetched. As a sterling example of the advantages of capitalism, several creative business people, including the marketing geniuses at Silk Road 2.0, rushed to fill the void left after the arrest of the Dread Pirate Roberts and to address the need for illicit drugs and murder for hire through the dark web.

7 through 12. The Year In Hacking: (i) The cyber division of the Chinese People’s Liberation Army was charged with hacking into the networks of Westinghouse and U.S. Steel, among others; (ii) Chinese hackers also breached the network of the U.S. Gov’s Office of Personnel Management and targeted information from employees applying for top security clearances; (iii) Sony Pictures was hacked by North Korea (maybe) hackers, which resulted in a movie called “The Interview” getting a lot more publicity that it deserved and Charlize Theron getting paid an amount equal to her male contemporaries, so it wasn’t all bad. How could you not pay one of the most desirable people (have you seen that perfume commercial?!) on the planet anything she asked? (iv) A glitch in Apple’s picture storing service along with weak passwords and not so secure security questions allowed most of us (don’t say you didn’t look, too) to see a lot of celebrity nude selfies; and (v) eBay was hacked and lost the personal records of 233 million users.

13. While technically falling within the realm of hacking, a disturbing tactic became more prominent during 2014. This technique, called cyber-ransom or ransomware, manifests itself by having a hacker obtain control over your network and threatening either to release the information, not allow the owner to use its own network or to destroy all the information in the network unless a ransom is paid. Domino’s pizza in Europe was asked for $40,000 to avoid having information in their network released. The release never happened and it is unclear as to whether Domino’s paid the ransom within 30 minutes. A company named Code Spaces was put out of business when it refused to pay a ransom and a vindictive hacker destroyed so much of its information that it had to close.

14. The Supreme Court of the United States was asked in 2014 to grant certiorari to hear the Google v. Oracle suit involving the ability to copyright interfaces. Recently, SCOTUS has asked the Solicitor General of the U.S. to file a brief regarding the advisability of granting cert. No decision of whether the court will hear this case has occurred yet.

2014 was rife with collisions occurring at the intersection of the law and technology. 2015 is likely to be just as debris strewn.

Interfaces ("APIs") Are Subject To Copyright. No, They're Not! Are Too! Courts Continue To Muddy Up The Water.

There are a mere 37 pieces of computer code that are the subject of this face off between the tech titans, Oracle and Google.  We have followed this case since its inception and you can review the history here, here and here.

In the latest installment, Oracle appealed a lower court ruling that held that application programming interfaces ("APIs") were not subject to copyright.  We thought that the issue might be settled.  Not so fast, my friend.  A three judge panel in the United Court of Appeals for the Federal Circuit has reversed and held that such APIs are indeed subject to copyright protection and the only question is whether Google's use is allowed under the "fair use" exception.  The panel remanded the case to the lower court for a determination of the possibility of such fair use.

After reading the very detailed opinion, the main facts to be gleaned are there was 7,000 lines of code involved, there were 37 different interfaces and the opinion is 69 pages in length.  There is much good discussion regarding the application of copyright law to interfaces and the fair use doctrine.  You should read it.  The law the court cites is extensive but some quibble with the application of such law.  Given past performance, the odds are even that the result will change on appeal.

UPDATE: Circuit Court of Appeals Reverses Decision That Use of Rutgers Quarterback's Likeness Was "Transformative". Mr. Hart Is Back "In The Game".

We noted back in October of 2011 that a District Court in New Jersey had granted EA Sport's motion for summary judgment in a suit brought by Ryan Hart, a former quarterback at Rutgers.  EA Sports had used as a basis for its motion that even though the video game used Mr. Hart's likeness, including his height, weight, home town and commonly worn visor and arm bands that the mechanism of the video game allowed users to change these and as such was "transformative".  If a use is found to be transformative, usually the courts will find that the user's First Amendment rights prevail over the subject's privacy rights.  The District Court so found in this case and granted defendant's motion.  An appeal ensued.

The Circuit Court of Appeals reversed.  In a 2 to 1 decision, the Circuit Court rejected the idea that the ability to change the player's characteristics by the user rose to the level of transformative use. In fact, the appellant court held that the presence of interactivity, the ability to change the characteristics of the subject (the court noted that the player's unaltered image was the default image) and the presence of other creative elements did not tip the "balance" in favor of the First Amendment.

Thus, the granting of the motion for summary judgment was reversed and remanded for further hearings.  Mr. Hart is back "In The Game".

It's also nice to finally see someone from Rutgers win something.

Having An Open WiFi Does Not Ipso Facto Make You Liable For Negligent Infringement.

Here's the scenario:  You have an open WiFi (i.e. no password required), someone (maybe you, maybe not), uses that IP address to download a copyright work, someone (probably a copyright troll) sends a subpoena to your internet service provider and finds that this happened, you receive a letter from a copyright troll attorney that says in basic terms:  "You are a horrible person.  A copyright protected work was illegally downloaded using your IP address.  It was entitled something that included "hot", "wet" and a bodily orifice in the title.  You should be ashamed and if you pay me $3,000 now, it will all go away and your wife/girlfriend/scout troop/sunday school class will never know.  Otherwise, we can sue you for negligence because your WiFi was not protected and we don't even have to prove you did the download."

Maybe this comes as a huge surprise to you, maybe it doesn't.  However, will the negligence claim fly and allow the trolls to tag you with liability even if they can't prove you actually did it?  A couple of courts have said no.  Last week the U.S. District Court for Northern California in a case styled AF Holdings LLC v. John Doe and Josh Hatfield held that the mere inaction of not protecting your WiFi was not negligence because the defendant did not owe a duty to the plaintiff to take an affirmative action to protect the plaintiff's intellectual property.  In addition, the court held that this was still a copyright case and state law of negligence was preempted by the federal copyright statute.  And to further make a point, the court found immunity for the defendant under Section 230 of the Communications Decency Act.

So, it seems to be the trending opinion that you aren't strictly liable for contributory infringement for just leaving your WiFi open.  Seems right to me.

New Top Level Domain Names. Coming Soon To A Browser Near You.

We have discussed before the new ICANN Top Level Domain scheme, whereby the initial regimen of .com, .net, .edu, etc. could be supplemented by any word to which an approved registrar gets the rights.  We joked that we were going to apply for the .law domain.  We came up a little short on our aluminum can drive to get the $185,000 necessary for the application but obviously someone is reading our blog because ICANN released a list of the applications today and six entities have applied for the .law domain name.  If that wasn't enough, there were two applications for .lawyer, two for .legal, one for .esq, one for .attorney and one for .abogado.

A review of the proposed strings probably provides a commentary on contemporary society, but you can make that evaluation.  The following are some of the applications and the number of applicants for such strings:

  1. 13 applications for .app
  2. 1 application for .bible, but none for .koran, although there is 1 for .catholic and 1 for .islam
  3. The applications are as divided as the country with 1 application for .democrat and 1 for .republican
  4. In the organized entity arena, there were 10 applications for .inc, 9 for .llc, 4 for .llp, 4 for .gmhd and 7 for .ltd
  5. There were 6 applications for .tech, 7 for .web and 7 for .cloud
  6. On the family front there were 3 applications for .mom and only 1 for .dad.  That sounds about right.
  7. For all the adults, there was 1 application for .porn (there already is a .xxx domain), 2 for .sex and 1 for .sexy
  8. There was 1 application for .gay and no applications for .straight
  9. There were numerous applications by corporations for the corporate extension, like .canon, .dell, .firestone and .csc
  10. And in the "I've got $185,000, I don't need right now" category, there was 1 application for .wtf and 1 for .unicorn.

There now follows a 60 day comment period and a 7 month window for filing an objection to any application.  Anyone want to oppose .cialis?  You can only do that after 4 hours.

Common Contract Clauses We Never Think Much About, But Should.

This is for all you contract nerds out there.  You know who you are.  You become aroused at the sight of a well crafted limitation of liability provision.  OK, then.  Well, me neither.

A recent case dealt with a choice of law provision that we routinely use and routinely don't think much about.

Oh, we fight over the choice of law provision.  We usually want the choice of our state with venue and jurisdiction to follow.  We haggle over New Jersey vs. New York when we probably don't have a clue as to the difference it would make on most issues.  We're just looking for some home cooking.  So, what happens when the parties agree in a contract as to the state whose law will be applied?  In Ruiz v. Affinity Logistics Corp. (9th Cir. Case No. 10-55581, Feb. 8, 2012) the issue was whether truck drivers were independent contractors or employees and the two states involved were Georgia and California.  Georgia law has a rebuttable presumption that they are independent contractors and California law would favor them being employees.  The contract in question chose Georgia law and Georgia was where the defendant had its principal place of business and was incorporated.  Ergo, slam dunk, right?  The parties were grownups and capable of making this decision.  The chosen law (Georgia) applies.  The Ninth Circuit says, 'Not so fast, my friends".

The Ninth Circuit decided that Section 187 of the Second Restatement of Conflicts of Law applies. Section 187 says in pertinent part that for things that parties can resolve by a specific provision in the agreement, the choice of law of the parties will prevail.  "In such instances, the forum will apply the applicable provisions of the law of the designated state in order to effectuate the intentions of the parties. So much has never been doubted." [Emphasis added]

Section 187 goes on to say that for matters that the parties can not resolve by a specific provision (e.g. making an illegal contract legal, agreeing that a party has capacity to contract when he doesn't), the choice of law in the contract will still be enforced unless the chosen state has no substantial relationship to the parties or the transaction, there is no other rational basis for selecting the state and the laws of the chosen state are contrary to a fundamental policy of another state and such state would be the choice of law absent the choice by the parties.

The Ninth Circuit then decides, without much discussion or explanation, that the provisions of the second part of Section 187 (the part about matters that the parties can not resolve by a specific contractual provision) should be applied and finally opines that California law should be applied instead of the state (Georgia) chosen by the parties.  The most common reading of Section 187 of the Restatement would mandate that after the court determined that the parties chose the law of a particular state and that such choice was not obtained by fraud or misrepresentation and that the parties were capable of contracting for such a provision, the discussion would be over and the consideration of the second part of Section 187 would be unnecessary.  This Ninth Circuit decision would require the consideration of all the factors listed in Section 187.

Why should we care?  Well, if we know that a particular issue is treated in a particular way in a particular state and both parties desire that treatment, there should be no reason why the parties can't agree to that.  It is common practice to chose Delaware law for corporations that have no contact with Delaware except that they are incorporated there because Delaware courts are perceived to be better at dealing with commercial and corporate issues.  This decision calls those provisions into question.

OK, Maybe You Can Be Anonymous And Your Scream Can Be Heard In Cyberspace.

Hard on the heels of the Doe v. SEC case discussed in the immediately preceding post, another case where anonymity is sought comes through the Northern District of California.  In Art of Living Foundation v. Does 1 - 10, the plaintiff seeks the identity of one of the defendants in an action for copyright infringement, among other things.

The plaintiff is an international foundation that teaches the philosophy of Ravi Shankar, the spiritual leader, not to be confused with famed sitarist, Beatles confidant and Norah Jones' father of the same name.

One of the defendants goes by the online pseudonym of Skywalker and has been critical of the teachings of the Art of Living Foundation.  In addition, Skywalker put one of the manuals used by the Foundation online.  The Foundation sued Skywalker and others for defamation, copyright infringement, trade libel and misappropriation of trade secrets.  The Foundation moved for a subpoena to Skywalker's blog host seeking Skywalker's identity.  Skywalker, anonymously, through an attorney, moved to quash.  The magistrate allowed the subpoena and Skywalker brings this appeal.

The magistrate applied the standard of Sony Music Entertainment Inc. v. Does 1 - 40, 326 F. Supp. 2d 556 (S.D.N.Y., 2004) and found that Plaintiff had alleged a prima facie case of copyright infringement due to the online publishing of the manual, the subpoenas were targeted to obtain information to identify the defendant, Plaintiff had no other means to identify Skywalker, without such identity, it would be prohibitively expensive to conduct discovery and even if Skywalker had engaged in protected speech, he had no expectation of privacy because "the First Amendment does not shield copyright infringement".

On appeal, Skywalker alleged that because his speech concerned a matter of public interest, the Court should apply the more rigorous standard used by Highfields Capital Management L.P. v. Doe, 385 F. Supp. 2d 969, 975-76 (N.D. Cal. 2005).

The Court of Appeals stated that the more rigorous standard in the Highfields case required (in addition to the factors considered by the magistrate) that the court balance "the magnitude of the harms that would be caused to the competing interests" by their ruling.  The Court held that because of the nature of Skywalker's speech (i.e. more political, religious or literary rather than commercial), the Highfields approach balances the parties' interests better than the Sony approach.  The Court also found that evidence of copyright infringement does not automatically remove the speech at issue from the scope of the First Amendment.

The Court found that, to the extent that Skywalker's anonymity facilitates free speech, the mere disclosure of his identity is itself an irreparable harm and that the plaintiff can continue its case, in view of the fact that Skywalker has been participating in the case through his attorney.  The Court quashed the subpoena.

It is possible that the Court would have reached a different result if Skywalker had not removed the manual from his blog because of a DMCA take down notice or if Skywalker had not been actively involved in the lawsuit.  In any event, Skywalker remains anonymous for a while.

It Meant What It Says and It Said What It Meant, A Contract Must Be Enforced 100%. The "Plain Meaning Rule" in Contract Construction.

With apologies to Horton and Dr. Seuss, we embark on a discussion of how attorneys must be extremely careful to articulate all the aspects of a deal in an agreement and not depend on a court to bail them out by adding other elements even if the parties thought they had agreed on these elements but failed to include them in the agreement.

A recent case in New Jersey shines a bright light on this situation.  In Microbilt Corporation v. L2C, Inc., Superior Court of New Jersey, No. A-3141-09T3, Decided August 23, 2011 the Court examined and applied the common law rule of contract construction referred to a the "plain meaning rule" or the "parole evidence rule".  In this case, Microbilt contracted with L2C for L2C to:  "...perform credit evaluations on suitable applicants, reach conclusions about the credit-worthiness of those applicants and quickly (as defined herein) return those conclusions to [MicroBilt]..."  The contract defined "conclusions" as "...a score, attributes or a combination of the two...".

L2C began to perform but Microbilt asserted that L2C must also provide Microbilt the underlying data used to calculate the credit scores.  L2C disagreed but agreed to contact the provider of the underlying data, a company called eFunds Corporation.   But lo and behold, eFunds and Microbilt had some history.  It seems that, in the near recent past, Microbilt had sued eFunds for breaching a contract to provide Microbilt some data (sound familiar?) and eFunds had counterclaimed asserting the Microbilt had breached the agreement by disseminating the data in violation of the agreement.  This conflict was ongoing.  So, in the spirit of spurned lovers everywhere, eFunds told L2C not to even think about giving the underlying data to Microbilt.

L2C told Microbilt about eFunds' reticence and Microbilt sued L2C for breach of contract alleging that "the [contract was] breached because L2C knew it needed to supply the supporting data".  The present situation was based on a motion by L2C to dismiss for failure to state a cause of action.  The Court said that such motions were evaluated on the same criteria as a motion for summary judgment.  The Court reasoned that:

1.  "The interpretation of a contract is ordinarily a legal question for the court and may be decided on summary judgment unless there is uncertainty, ambiguity or the need for parole evidence in aid of interpretation"..

2.  "When the terms of a contract are clear, it is the function of a court to enforce it as written and not to make a better contract for either of the parties."

3.  "Absent ambiguity, the intention of the parties is to be ascertained by the language of the contract." and

4.  "If the language is plain and capable of legal construction, the language alone must determine the agreement's force and effect."

The Court found that there was no ambiguity in that L2C had agreed only to provide a conclusion and that a conclusion was a score, an attribute or a combination of the two and did not involve the underlying data.  Microbilt conceded that the language was not ambiguous but said that "...the parties also understood that the underlying data was to be provided as well...".  Court said, that may be so but it doesn't matter.  If the language is unambiguous, parole evidence (i.e. evidence outside the language of the contract)  may not be introduced or considered by the court.  Hence, the dismissal of Microbilt's complaint for failure to state a cause of action was upheld.

The rule applied here is a common law rule of statutory construction and is followed by Texas courts.  See Baldwin v. New, 736 S.W.2d 148 (1987).

So, word to the wise.  If you agree to it, write it down. Don't be left waiting on an egg to hatch.

UPDATE: Supreme Court Allows Autodesk "License" Decision To Stand.

You will recall that we reported on a case styled Vernor v. Autodesk, which held that because of some "magic words", the distribution of used software was subject to a license and was not a sale and consequently, could be prevented by Autodesk.

Mr. Vernor (actually one or more of the multitude of entities that filed amicus briefs in the lower court, see here) sought an appeal to the U.S. Supreme Court but the Supremes denied cert on Oct. 3.  This means that the ruling stands in the Ninth Circuit (Washington, Oregon, California, Arizona, Nevada, Idaho and Montana) and if the proper words are used, the "first sale" doctrine doesn't apply.

Because this makes the operation of e-Bay and others more difficult, look for further developments.

Winklevoss Twins Not Particularly Enamored With Legal System, Lawyers nor Results.

We have chronicled the saga of the Winklevoss twins in these pages before (see here, here, here and here) and frankly, we're a little embarrassed we have spent so much time on this.  As you will remember, the twins succeeded beyond most mere mortals wildest expectations when they settled their claim against mighty Mark for a portion of Facebook now estimated to be worth more than 9 figures.  That definitely made them a member of the one percent.  They then decided that they had been scammed and tried a number of times to set the settlement aside.  As indicated in the posts described above, they have been singularly unsuccessful in that endeavor.

They engaged the firm of Quinn Emanuel to pursue the initial law suit against Facebook.  The arrangement with Quinn Emanuel provided for a contingency fee based on the amount ultimately recovered through suit or settlement.  They signed an engagement letter that they had reviewed by independent counsel.  After the settlement with Facebook, the twins decided not to pay Quinn Emanuel the $13 million in legal fees that Quinn Emanuel claimed under the engagement letter.  Quinn Emanuel instituted arbitration in accordance with the engagement letter.  The twins sought a court order enjoining the arbitration proceeding.  That was denied.  An arbitration panel awarded Quinn Emanuel the $13 million dollars.  The twins appealed again to the New York Supreme Court seeking to set aside the award because of the law firm's alleged malpractice.  Denied again.

The Winklevoss twins entered into a settlement that made them even wealthier than they already were.  They then decided that they didn't like what they had agreed to and have set out to avoid anything relating to that settlement.  They are zero for career in that category.  I wonder if the law firm representing them in the matter against Quinn Emanuel asked for up front payment.  They would be guilty of malpractice on their own behalf if they didn't.

EA Sports - Your Likeness is "In The Game"!

EA Sports is a video game maker that annually produces a game entitled NCAA Football.  Ryan Hart was a college football player that played for Rutgers.  EA Sports incorporated Mr. Hart's likeness into several versions of its video games, including matching his height, weight, home town, commonly worn arm band and helmet visor and other matters that pretty much matched Mr. Hart and his playing style at Rutgers.  Mr. Hart filed a complaint seeking class action status for himself and other college football players similarly situated.

EA Sports filed a motion for summary judgment, alleging that EA's first amendment rights trumped any of the claims that Mr. Hart had, including New Jersey's recognition of a common law right to prevent unauthorized, commercial appropriation of names and likenesses.

The Federal District Court of New Jersey granted EA's motion and dismissed the complaint.  In a long and detailed decision, the Court discussed several likeness cases including those involving Paris Hilton on a Hallmark card, Edgar Winters and his brother portrayed as giant worms in a comic book and the band No Doubt.

The Court relied on principles of copyright law and found that the defendant's use of the image was "transformative" and as such, was entitled to First Amendment protection that trumped any damages that the plaintiff had experienced.  The Court conceded that EA licensed likenesses of pro football players and licensed colors and logos of college teams from colleges and paid for those, but refused to pay for likenesses of college players.  They further conceded that this might seem "unfair" (You think?) but that the unfairness of the situation did not give rise to a different decision.

The Court found that a player of the video game could alter the player's likeness and playing attributes but that was not what was transformative.  The transformative feature was EA's creation of the mechanism by which the virtual player could be altered.

So, EA Sports incorporates Mr. Hart's unaltered image in the game but provides a mechanism to alter it, so First Amendment rights triumph.  "It's In The Game"

Negotiation 101 - Part 5 - Don't Hurry or Be Rushed and Try to Avoid Having to Comply With the Other Party's "Rules".

The recent political battle over the extension of the debt ceiling is a stark example of both sides of an issue using some variation of this rule to attempt to gain an advantage.  We've all been there.  It's the "Buy now or the price goes up tomorrow" sale approach or the "If you don't reduce the price and comply with my unreasonable contract terms, you won't get it done by the end of the quarter and consequently, you won't make your numbers."  Sometimes it's not that blatant but it often is a definite undercurrent to a negotiation.  "Settle now or we'll just go to trial" is another oft used ploy. 

The obvious answer is to anticipate the deadlines and allow sufficient time for all the issues to be completely discussed.  This is sometimes difficult if you are not the party that will benefit by the approaching of the looming deadline.  Also, because of human nature, it is sometimes hard to get agreement unless each side feels the heat of a deadline.  Is it wise to disclose your deadline?  If it is a real deadline and you are prepared to not do a deal if you miss the deadline, it probably is.  Here is where you consider your "BATNA" that we talked about earlier - the best alternative to a negotiated agreement.

I have used an example of negotiating by someone else's rules in a class I have taught in negotiating.  In that, I tell them that I will auction off a $20 bill.  The rules are only that each bid has to be at least in increments of $1 and that the party that doesn't buy it has to pay me their last bid.  The obvious ploy is for the bidders to cooperate and bid $1 without a competing bid and then share the profits among the co-conspirators.  However, that rarely happens and the bidding rapidly progresses until both (there's usually only two) realize that the maximum advantage ($20) is rapidly dwindling and that neither can afford to lose.  I have had bids as high as $100 before I've stopped it and made the point about negotiating according to another's rules without giving it sufficient thought.  The point to all of this is to try to attain an equal footing in regard to scheduling, times, places, deadlines and selected issues.  The other party has tried to impose its rules on you for a reason and it's certainly not because it is to your advantage.

Lawyers Have An Ethical Duty To Inform Clients That Electronic Communications May Not Be Confidential.

Once again we stand at the intersection of Ethics Street and Technology Avenue and notice that the traffic signals are insufficient to avoid multiple mishaps here.  Florid prose aside, attorneys must understand that certain methods of electronic communications may put them in an ethical problem if they don't warn their client that using such method may harm the confidential nature of the communication.

You will recall that we wrote recently on a court holding that using a computer or network provided by your employer to communicate with your attorney about a potential complaint against the employer could waive the attorney-client privilege.  Now the ABA has issued a formal opinion on the subject and the gist is that the attorney has an affirmative duty to warn the client about such an eventuality.  In Formal Opinion 11-459 issued August 4, 2011 the Committee on Ethics and Professional Responsibility states that if a client communicates with an attorney about "substantive" issues and such communications originate from an employer owned computer, device (e.g. smart phone) or network (even if from a private e-mail address), the attorney must assume that the employer has a right to access such communications and therefore, the attorney has a duty to warn the client about the risk.  Also, if the client does not heed the risk, the attorney should refrain from communicating with the client via the suspect method.

This duty arises as soon as the attorney-client relationship arises and the attorney knows or should know that the client is likely to send or receive attorney-client communications where there is a significant risk that the communications will be read by the employer or another third party.  This would appear to be particularly applicable in disputes with the employer and in matrimonial issues where the other spouse may have access to the device used for communications.  It also can arise from the use of public computers like libraries or hotels or the use of borrowed devices.

So, the question then arises: What is sufficient notice/warning to comply with this requirement?  The opinion doesn't specifically state but does mention that "reasonable" efforts must be made.  Would a standard tag line on your e-mail signature such as the following be enough?

"Anyone communicating to or from this office by means of an electronic device (including computers, smart phones, tablets or others) and using electronic communication (including e-mail, text messages, instant messages, chat rooms, comments on blogs or websites or others) are advised that such communications may not be confidential, particularly in instances where you are transmitting personal information using your employer's devices or networks or where you are using you are using public computers (such as libraries or hotels) or using a public wireless internet connection.  The effect of the loss of confidentiality will be the loss of attorney-client privilege and the possibility that such communications may not be protected from disclosure in any legal procedure in which you are involved.  You are cautioned to act accordingly."

Using such language as a part of your common electronic communication signature may be advisable and probably doesn't hurt but good practice would indicate an additional communication (such as the engagement/fee arrangement letter) in which the client acknowledges that they have received and understand the warning.  Also, we run the danger of having our e-mail signatures become documents in and of themselves that require our clients to have other attorneys review (hyperbole alert).

We would be interested in any measures that other attorneys have instituted to address this issue.

Negotiation 101 - Part 4 - Try To Avoid Being Double Negotiated.

This has often happened to me, particularly when negotiating with a large company.  Here's the scenario.  You have been working for some time (days, weeks or longer) and the parties in the room have finally struck a deal.  Your team has done some real soul searching and has stretched your position about as far as it will go.  Even at that, you are relieved that a deal is imminent.  Then, the other side says something like, "This has to be approved by [an executive, a committee, a computer or a Ouija board, etc.] in accordance with our corporate policies."  They assure you that it is merely a formality and should be a perfunctory task.  This is a little disconcerting because this had not been mentioned before, but you have few options because the deal can't be done without this approval.

So, they go off to get this perfunctory approval.  This not unlike the car salesman going into the back room to discuss your offer with the perhaps fictional sales manager.  Then, they come back with additional demands from the unseen executive, committee, computer or Ouija board and the word is that the deal will not be approved without such additional concessions.  Often, the concessions requested are not huge, but probably more than you had planned to give.  This is always very disappointing because you were already in the done deal mode and now you have to reengage.  Also, what happens if the new demands take the deal outside of the realm of reasonableness (at least from your perspective)?

To avoid this, these are the questions you should ask at the beginning of the negotiation: (1) Are all the decision makers in the room here? and (2) Will this have to be approved by any other entity?  Get a unequivocal answer.  If the answer is that someone else has to approve or some of the issues are too large for the authority of the people in the room, you can proceed accordingly.

Even taking these steps may not prevent this from happening but if you have been promised that no additional approval is required and then it is, you can engage in some righteous indignation and sometimes that's enough.

ATLB Mentioned In "Top 50 Up And Coming Blogs"

Our newest and best friend Rachael Davis, proprietor of Dr. IT, PhD, has graciously included us in her list of Top 50 Up and Coming Blogs.  We appreciate that and applaud Ms. Davis' perception and taste.

Cookies, COPPA and Contracts

Alliteration abounds.  Reports today concern the EU Directive on the use of cookies, a settlement with a Disney subsidiary for violation of COPPA (Children's Online Privacy Act of 1998) and why paying attention to the construction and organization in the drafting of a contract can be extremely important.

1.  The European Union has issued a directive that will go into effect on May 26 of this year that basically reverses the way cookies are handled.  In the past the regulations required that the user be advised of the way that cookies are used and be given the opportunity to opt out of receiving them.  The new regulations requires the same advising but requires "consent" before cookies can be placed.  This is the so-called "opt in" provision.  The regulations recognize that enforcement of this will be a phased in approach with the most intrusive cookies getting the most attention.  The Information Commissioner's Office has issued advice about how to deal with this.  If your website attracts significant traffic in the European Union, you would be well advised to read the ICO's advice and plan accordingly.

2. COPPA has requirements about what information can be collected from children online and what use can be made of such information.  The Federal Trade Commission accused Playdom, an online game provider, of violating COPPA by collecting information from children without parental consent and by violating its own stated privacy policy.  Playdom is a subsidiary of the Disney company.  The FTC filed a complaint against Playdom that resulted in a consent decree, which among other things, required a $3,000,000 civil penalty.   This is the largest penalty yet assessed for such a violation.

3.  The placement (or misplacement) of a single word recently made a $1,000,000 difference in a Maryland case.  In Weichert Co. of Maryland, Inc. v. Faust, an ex-employee of a real estate firm was sued for violation her obligation of  loyalty and the non-solicitation clause of her employment agreement.  The Court found that she violated the obligation of loyalty but not the non-solicitation clause.  Her contract had an attorneys' fee provision where the prevailing party is entitled to its fees.  The real estate firm prevailed on the breach of the duty of loyalty but the employee prevailed on the issue about non-solicitation.  The attorneys' fee provision was included in the non-solicitation clause and gave fees to the party that prevailed "hereunder".  Since the "hereunder' was in the particular clause, the Court reasoned that it applied only to that clause and not the contract or the relationship as a whole.  Hence, the employee was entitled to her attorneys' fee, which were approximately $1,000,000, even though she had "prevailed" on only half of the issues.  In the lessons learned department for us attorneys, if you intend to make a provision apply to the contract as a whole and not just a specific clause, move the provision into a section of its own or make it very clear that it is applicable to the whole contract.

New .XXX Top Level Domain Approved. The Steps You Need To Take Now To Insure That You Don't See a [yourname].XXX Domain In The Future!

You may have read recently that ICANN (Internet Corporation For Assigned Names and Numbers) has approved the new top level domain (TLD) of .XXX.  Obviously, this is intended for the adult entertainment industry and TLDs with that extension will begin to be issued in the near future.  However, aside from any passing prurient interest you may have in mentioning this factoid in social chatter, does this affect you in any way?

It does if you would not want to Google your name, trademark or tradename in the future and find that name with a .XXX extension.  So, if  you are concerned that this might happen either because someone might want to take advantage of the popularity of your name or you have a really sick friend that might want to hold this over you as a pathetic practical joke, here is what you need to do now.

ICM Registry has obtained the rights to act as the registrar for the .XXX domain.  They have set up a procedure to address your concerns about having your name or tradename associated with a .XXX domain.  The procedure is referred to as Sunrise A, B and C and offers you two avenues to avoid the result we describe above.  Obviously, one avenue would be to apply for all the domain names you want to protect with the .XXX extension and then just not use them for anything.  However, you would still show up in a search on WHOIS as the owner.  This is the Sunrise A procedure.  The preferred route would be Sunrise B, which allows domain holders and trademark holders to apply to block use of those names with the offending extension.  This is the explanation from the ICM website:

"Sunrise B is for rights owners from outside the [adult entertainment industry]. Names secured through Sunrise B will not result in the registration of a conventional, resolving domain name at the .xxx registry. Instead, these names will be reserved and blocked from live use. The applied for string will resolve to a standard plain page indicating only that the string is reserved from use through ICM’s rights protection program."

Since time could be of the essence, head over to this site or have someone do it for you and open an account and apply to reserve the appropriate names.  At some point in the process (after the original submission), you may be asked to prove you have the rights to the names so be prepared to do that. 

Now, don't you feel better?

Your Government And Courts At Work.

A few things for your consideration:

1.  The White House's proposed budget includes the authority for the USPTO to charge a surcharge on patent applications.  The proposed budget would provide $2.7 billion for fiscal 2012 with one of the stated objectives to reduce the backlog of 720,000+ applications.

2.  By Executive Order 13565 of February 8, 2011, the White House established two I.P. committees.  One is the Senior Intellectual Property Enforcement Advisory Committee, which will facilitate the formation and implementation of each Joint Strategic Plan, which will be be developed by the other committee established, the Intellectual Property Enforcement Advisory Committee.  As is evidenced by their names (i.e. Senior and not Senior) the Senior Advisory Committee will be comprised of cabinet level members or their designees and the Enforcement Advisory Committee will be comprised of representatives from the USPTO, DOJ, Department of Commerce and others.

3.  Health and Human Services through its Office for Civil Rights has assessed its first ever civil penalty for violation of HIPAA.  The penalty was $4.3 million against Cignet Health of Prince George’s County, Md.  Cignet failed or refused to provide health records to at least 41 patients and then apparently stonewalled the patients and requests from the Office for Civil Rights to the extent that the Office for Civil Rights obtained a default judgment against them.  Cignet also apparently was uncooperative in the investigation into this affair.  The penalty was $1.3 million for failure to provide access to the records and $3.0 million for being uncooperative.

4.  Microsoft was successful in getting a patent infringement suit originally filed in the Eastern District of Texas transferred to the Western District of Washington on the grounds of forum non conveniens.  For some strange reason, there are a lot of patent infringement suits and class actions filed in the Eastern District of Texas.  The plaintiff here, Allvoice, was an U.K. company with an office in the Eastern District of Texas but with no employees there or anywhere in the U.S.  Calls there were transferred to their office in the U..K.  Allvoice was incorporated in Texas but had done so 16 days before the suit was filed.  Forum shop much?  The Circuit Court of Appeals issued a writ of mandamus compelling transfer to Microsoft's home court even though Microsoft had also petitioned to move the case the Southern District of Texas.


Texas Attorney General Investigates Google's Alleged Anti-Trust Activity

On September 3, Search Engine Land reported, and Google confirmed that the Texas Attorney General, Greg Abbott, inquired about and is currently investigating potential anti-trust activity by Google. It was reported Greg Abbott's office declined to answer any questions, and now everyone is just speculating on what the outcome will be. Well, I'm no better. 

This is not the first anti-trust inquiry Google has faced, and it likely won't be the last. According to Experian Hitwise, Google accounts for 71% of searches in the United States, and it's no surprise to anyone when you've got that kind of market share, you've got a lot of bulls-eyes on your back, as well as a lot of government officials making sure you don't go all anti-trusty on the rest of the market. Google has been in this position for sometime, and I'm sure I'm missing a few, but here are some of the Google antitrust highlights over the last few years:

There were other activities involving the FTC, but for purposes of brevity let's pretend I've included the most relevant instances. Since a majority of internet users search using Google, any company  wanting to be found spends a lot of money utilizing the algorithms set out by the internet giant. Take a look at number of new companies providing SEO functions. When large expenditures are dedicated to this task and lost when the algorithm is altered, you can imagine the frustration and the likelihood of damages that could be involved. You've got angry companies who wonder why these changes had to happen. This is a valid concern, right?

On the flip side, doesn't Google need to update its algorithms? Understandably, Google has to change with the technology (new programing languages, bots, etc.) in order to provide the best search engine for it's users. It doesn't want to lose any of that 71%. However, if Google competitors begin to lose page rank status because of these changes questions begin to arise to the reasoning behind the changes. 

According to Google's business model, "You can make money without being evil," and I have a tendency to believe them. It might be because of all the products I use, but they seem to do a great job of creating well thought out systems that help my productivity. If changes to the search engine are found to be anticompetitive because someone loses their page rank, is that a victory? Does the public benefit? Does holding back the smartest person in the class really help competition and the end-user?

On a similar note, factor in that several of these companies have ties to Microsoft, and you've got a mixed bag of issues. Microsoft owns Ciao (as mentioned above), and involved their lawyers with assistance in proper representation. Then in February of 2010, Microsoft General Counsel, Dave Heiner, voiced his opinions on the matter, discussing that it's not just Microsoft pointing fingers, but several companies and groups raise interesting questions regarding Google's potentially anticompetitive nature. 

As I mentioned, I like to think Google isn't evil, but what if I and my fellow Googlers are wrong? What if the reverse is true and Google alters algorithms when another search company starts to gain market share? It will be interesting to see how these investigations progress and what kind of case will develop. Without addressing the validity of anti-trust laws, it's a touchy area when determining whether changes in the Google algorithms had a basis in creating a better search engine or were used a vehicle to keep any competitors out of the market. What were the motives of any changes? Were there "better" results for the searching capabilities of Google? Who decides what those "better" capabilities should be?

As a final note, back in March of last year, Eric Clemons, wrote a guest piece for TechCrunch and gave his opinion of "What an anti-trust suit against Google would look like." The article provides great insight on the basics of how these lawsuits work and is a good read if you want to see how this suit might potentially proceed. 


Malware Might Have Played A Part In Deadly Plane Crash

OK, now it's serious.  It's one thing to lose credit card information or for your Facebook account to be high jacked, but malware is said to have been instrumental in the cause of death and destruction in the crash of a Spainair flight two years ago.  Investigators have determined that ground computers were infected with malicious code that may have prevented the pilots from being warned that the flaps were in the wrong configuration for takeoff.

This blog has previously discussed the malicious code problem here, here and here.  Experts in virus protection are becoming increasingly pessimistic about the ability of reactive virus protection to be effective.

A video of the crash can be seen here.  Warning, this is unsettling in that it is video of an event where a large number of people lost their lives.

I told you this was serious.

START UP WEEK: What Is This Operating Agreement Of Which You Speak?

In this, the third installment of “Start Up Week”, we will discuss some aspects of the fundamental document governing the internal operation and rules of a limited liability company (“LLC”). This is referred to in various state statutes as a “Company Agreement” (Texas) or an “Operating Agreement”. Regardless of what you call it, it contains the rules to live by in a LLC. Because of the blurring of the lines between various kinds of legal entities in the past few decades, the Operating Agreement is similar in many ways to the by-laws of a corporation and the partnership agreements in general partnerships, limited partnerships and limited liability partnerships, but the discussion in this post relates only to Operating Agreements.
“Why do I need one?” you might ask. You might tell me that you went on the Secretary of State’s web site and for $300 and 15 minutes of your time, you formed your own LLC and have not done anything else, so what’s the big deal?
Technically, you don’t even need a written Operating Agreement. An Operating Agreement can be written or oral, although I’m sure you recognize the problem of proof if you try to rely on an oral Operating Agreement. Therefore, you should have a written Operating Agreement even if you are the only member (owner) of a LLC. The Texas statutes recognize and provide for that situation, even if you are essentially agreeing with yourself. One of the best reasons for forming a LLC is the limited liability feature of such an entity and availing yourself of such limited liability requires that you treat the LLC as an entity separate from yourself in regard to contracting, bank accounts, leases, etc. The failure to make such separation can be that a court (in a situation you don’t want to be in) might say that since you disregarded the separate nature of your LLC, the court will do the same and therefore, you don’t have the limited liability protection. The existence of a written Operating Agreement, while not dispositive of the issue in and of itself, is evidence of your recognition of the separate entity and aids in the defense of any attempt to “pierce the veil” of the LLC.
Even if you don’t have a written Operating Agreement, the state has provided one for you. For example, in Texas the statute says, “To the extent that the company agreement of a limited liability company does not otherwise provide, (these statutes) govern the internal affairs of the company.”
So, if the state is going to write one for you, why not do one that might better suit your needs?
While not exhaustive, the following is a discussion of issues that should be considered in your Operating Agreement. These should be carefully considered and discussed with an attorney and an accountant to determine if they actually achieve the goals that the members have for the LLC and their investment in it. Also, since we have treated the posts during this “Start Up Week” as alpha and omega and “Cradle to Grave”, you can consider the Operating Agreement as a giant pre-nuptial agreement relating to the very real relationship you will be entering into in a multi-member LLC. Therefore, you should provide for how you get into the relationship, how you act during the relationship and how you are going to end the relationship. Good advice in life, good advice in LLCs.

1. What happens when you or another member want to sell your interests?

Interests in small LLCs tend to be closely held and not particularly marketable, so this tends to be self-limiting. However, absent some contractual restriction, LLC interests are freely assignable, and you don’t want to wake up one morning and find that you are in business with someone that you didn’t anticipate, so you should consider restricting the sale in some way. Some methods of doing this are: (i) right of first refusal in favor of the LLC and the other members on the same price and terms as offered by a third party; (ii) exercise of a “stare-down” agreement (also called “push-pull”) where a party desiring to sell names a price and the other member(s) can either purchase the interest at that price or sell their interest at that price but one or the other has to occur; and (iii) declaration of intent to sell where a party who desires to sell declares that intent and the terms upon which the party would sell (this is similar to the right of first refusal but there is not a ready buyer at the time).
Other situations that you would possibly want to consider are purchase of a member’s interest in the event of divorce, death, disability, bankruptcy, retirement, breach of the Operating Agreement or termination of employment for good cause. The situations in this paragraph would require the establishment of a value for the interest that can either be done in the Operating Agreement (generally forgotten and rarely updated) or by a method established in the Operating Agreement (e.g. third party appraisal).

2. How capital is to be contributed and gains and losses are to be allocated?

In the event that not every member contributes the same amount to the enterprise (e.g. some contribute money, some contribute intellectual property or labor, etc.) the dynamics and results of that non-symmetry needs to be considered. The maintenance of each member’s capital account and how that will be affected if different capital contributions are made but gains and losses are passed through in equal amounts should be discussed in depth with a financial adviser. Also, if future capital contributions are to be made, what happens if there is default? Is the defaulting party’s interest subject to being bought out at some pre-determined price or is the defaulting party’s interest terminated? Other consequences can be set out. One of the values of a LLC is its flexibility. As long as it is not illegal, you can agree to do it in an Operating Agreement.

3. What are other considerations?

Aside from how to capitalize and distribute gains and losses and how to manage a termination of the relationship, other issues to be considered are how to form and manage the enterprise, whether to have the LLC indemnify the members for certain actions and whether to distribute money to pay for tax liabilities in certain situations.

Obviously, any lawyer worth his salt can work one of these agreements into a multi-volume set. However, the time, effort, expense and thought put into this on the front end when people are much more agreeable can avert a number of issues down the road when they might not be so congenial.
Avoiding future problems, that’s a good thing.

Jam 4 Justice - Rock Out For Rights

Most of us don't know that the rights of crime victims are enshrined in Article 1, Section 30 of the Texas Constitution.  Thankfully, we have some people in our community that look out for those of us that don't know these things.

Our friends, Jim Currier and Owen Mangold, have been active in this area for years and have helped many people through the non-profit organization Crime Victims First.  To raise funds and to raise awareness of victims' rights, CV1 is sponsoring Jam 4 Justice on April 25 at Scholz Garten.  You should go and have a good time.

While this is not a technology related topic, from time to time we like to give a shout out to our friends who are doing good work, like this.