Social & Mobile & Clouds, Oh My!

Joe Rosenbaum recently authored an article that has been published in the Small Business Journal highlighting some of the key issues that have arisen for small to medium-size businesses as a result of the emergence and convergence of these rapidly evolving technological platforms. Joe’s article, "Social & Mobile & Clouds, Oh My!" appears in the March 2014 issue of the Small Business Journal, and you can read "Social & Mobile & Clouds, Oh My!" [PDF] here as well.

If you require legal guidance, support or representation on the issues highlighted in the article, or on any other matters, you can contact Joe directly at jrosenbaum@reedsmith.com; or you should get in touch with the Reed Smith attorney with whom you regularly work. We are happy to help.

Crowd Funding. Apologies, William Wordsworth

"I wandered lonely as a cloud
That floats on high o'er vales and hills,
When all at once I saw a crowd,"

. . . and so begins the beautiful and timeless poem by William Wordsworth. Although Wordsworth's crowd was a host of golden daffodils, the crowds most of us have been hearing about lately are either crowd sourcing (check out When Online Games, Health & Life Sciences and Crowd Sourcing Combine) or crowd funding – the subject of this post.

In today's world, according to the Wikipedia definition, "crowd funding" refers to the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations."

There remains some confusion in the marketplace as to the mechanisms by which the crowds' funds are made available to business ventures, film promotion and production, worthy causes, and civic organizations. Contrary to what many may believe, it is currently not legal to solicit, offer or otherwise make available any form of securities or equity investment (I'm over-simplifying, but that is the net effect) through online, crowd or other web-based funding schemes. In other words, you can't raise equity or solicit investments through crowd funding that provide the expectation of profit or the risk of loss of capital investment – in much the same way the traditional stock markets function when they allow individuals to purchase and sell securities.

It is true that the U.S. Securities Exchange Commission has been talking about promulgating regulations aimed at legitimizing, with regulation and oversight, the use of crowd funding as an investment opportunity (and the SEC has publicly announced that it hopes to have the regulations released for comment this fall). But until the regulators promulgate rules and enable it, you can't "invest," and businesses and other ventures can't "raise capital," through equity or securities offerings through crowd funding.

So what's the buzz about. Well, first it combines "power to the people" with "put your money where your mouth is" in ways unheard of prior to the Internet! Second, there are still opportunities to raise capital from the public in ways that aren't illegal and don't involve equity or securities. Currently, there are four major categories of crowd funding activity. To wit:

I am a musician (not really, it's just an example) and I tell you that if you pay me $1,000, I will write a song to or about you. If you pay me $5,000, I'll not only write the song, but if I'm nominated for a major music award (e.g., Grammy, VMA, CMA), I'll get you two tickets to the awards show. That is referred to as the ”rewards” model of crowdfunding.

Next is the ”pre-payment” model. Please send me $5 and when the song is completed, but before it's released and available to the general public for $7, I will send you a copy. If I offer to autograph it for another $3, I've combined the pre-payment and rewards model.

Then there's the cause-related model. Listen, I am talented and you love good music, but I'm starving. Please just send me $10 so I can eat, rent recording studio time, and try to publish and distribute my music. Pure online begging – there is no expectation of anything in return.

Last, but not least, the ”loan” model. Please help finance the production of my music, my tour (I'll send you a T-shirt) and just lend me some money. I promise to pay you back when I start making money – but, WITHOUT interest. There must be no expectation that anyone who lends money will make a profit (interest) on the loan. While there may still be lending laws that apply as to how this is done, it won't trigger the prohibitions under securities' laws, as long as you don't pay interest.

In conclusion, while there are some high-profile examples of projects that have raised millions through crowd funding, most do not – at least not yet. In fact, most commercial ventures raise very little through crowd funding. In the words of Wordsworth: "A poet could not but be gay, In such a jocund company. I gazed – and gazed – but little thought, What wealth the show to me had brought."

Is Your Currency Current . . . Virtual, Digital, Crypto?

In recent months, "virtual currency" has been making headlines. Most of us don’t really think about what "virtual" currency means and often confuse it with other forms of money. That said, there is good reason for confusion and concern. Like many other technology-driven innovations, lines are blurring and we know blurring lines means opportunity and danger. So Legal Bytes will tackle this in two parts. The first (below) attempts to describe what all these new terms mean and how they are used. Legal Bytes part two (later this week) will summarize current events – the confusion and concern over exactly what all this means to our economy and why you should care.

Virtual currencies got their start in virtual economies that exist in virtual worlds. For example, in massively multi-player online role-playing games (MMORPGs) such as World of Warcraft, players "earn" credits and have the ability to exchange, use or "spend" this virtual "value" in the game environment, to acquire virtual tools, weapons, skills and game items that may be recreationally fun and integral to game play; but virtual currency never bought you food to eat or housing to shelter you in the real world. HOWEVER, what happens when real people start buying, selling and exchanging virtual currency, and create markets that interact with the real world?

First, let’s get our terms straight. Digital currency is not "virtual." Digital currency represents a real alternative to government-issued currency. It originated with accounts or promises to pay that were used primarily online. One of the most familiar paper-based examples of a non-government promise to pay is the American Express® Travelers Cheque. More than 100 years old, these payment instruments are backed purely by the full faith and credit of American Express – and not the government of any nation. They aren’t backed by gold or silver or precious jewels or even bananas – just a corporate obligation to repay you, based on a contract (the purchase application form) you sign when they are purchased! As you might have noticed, there are multiple forms of these types of digital promises – one, like its paper-based cousin, is simply a digital promise to pay: numbers representing value backed by the issuer – electronic gift cards, a promotional advertisement that can initiate or enhance a digital music subscription, are examples. In other instances, digital money may be based on some real "deposit" (e.g., using a traditional debit or credit or checking account) in which the transferred funds are held in an electronic account, uniquely identified to the user and more closely resembling a "bank account," with which most consumers are familiar.

In most jurisdictions, companies that issue digital versions of payment instruments (e.g., Travelers Cheques) or that hold digital financial accounts (e.g., PayPal®) often fall within some banking or financial regulation. For example, in the United States, PayPal is considered a payment intermediary, regulated as a money transmitter under the U.S. Federal Code of Regulation and the various state laws that apply to money transmitters. That said, PayPal is not technically regulated by the Truth-in-Lending Act (TILA) or its implementing Regulation Z, nor by the Electronic Funds Transfer Act, implemented by Regulation E [http://www.fdic.gov/regulations/laws/rules/6500-3100.html]; and although PayPal takes great pains to protect against fraud, in the United States, unless you use a credit card (or debit card) to fund a PayPal transaction, consumers have no technical legal or regulatory protection from fraud by a seller. In Europe, PayPal (Europe) Ltd., was licensed by the Financial Services Authority (FSA) as an Electronic Money Issuer, and in 2007 transferred all of its European accounts to Luxembourg to a new entity PayPal (Europe) Sàrl et Cie SC, which is regulated by the Commission de Surveillance du Secteur Financier.

Some of you history buffs will remember DigiCash (originated by David Chaum in 1990), which sought to anonymize financial transactions using cryptography. Well over the past few years, a company named BitCoin (and others such as Litecoin and PPCoin, which are to a greater or lesser extent based on, inspired by, or technically comparable to BitCoin), have launched and popularized a form of digital currency that is often confused with and referred to as "virtual." This form of digital currency is referred to by financial and security experts as “cryptocurrency.” Cryptocurrency is a digital currency that uses encryption technology to create and manage the digital currency. They are peer-to-peer and decentralized in nature and, at least for now, all are pseudonymous.

As you can guess, all of these confusing terms and the fact that virtual currency in games, gaming, online social media and networking platforms, and virtual world environments began interacting with the real world, has become not merely confusing but alarming. Look at Second Life, a virtual world that allows the purchase and sale of "Linden Dollars," the in-world official currency, in exchange for real money through third-party websites. Second Life accords both virtual "real estate" and intellectual property real value in its virtual environment; enables "residents" (avatars) to creatively enhance and customize the resources available in-world; allows some property rights to be exclusive or limited (think supply and demand); and permits the exchange and purchase and sale of virtual property rights in-world; and one’s property remains one’s property (and one retains Linden Dollars until spent or given away or used) throughout the life of one’s avatar – at least as long as Linden Laboratories continues to maintain the Second Life virtual world environment.

These are many of the same conditions that affect real financial systems. No wonder that what started as a curiosity – online digital playgrounds with no real money or value being exchanged – have become complex economic environments that financially interact with real world economic systems and are causing concern among legislators, regulators and courts around the world. In part two, Legal Bytes will review recent developments and try to describe the challenges facing legal, financial, security and business professionals.

...And Now a Word from Your Hedge Fund

This post was written by Frederick Lah.

This past Wednesday (July 10), the SEC voted 4-1 to approve amendments to Rule 506, lifting the 80-year ban on advertising for hedge funds and certain other investments (See, SEC Votes to Ease 80-Year-Old Ban on Private-Investment Ads.) Reed Smith previously reported these amendments when they were initially proposed in August 2012, and you can read our earlier analysis, SEC Regs Amended To Allow Hedge Funds To Advertise: Potential Data Privacy Implications.

Under the revised Rule 506, hedge funds and other issuers seeking to conduct private offers may now use general solicitation and advertising to offer their securities, provided that: (1) the issuer takes reasonable steps to verify that the purchasers are accredited investors; and (2) all purchases of the securities fall within one of the categories of persons who are accredited investors, or the issuer must reasonably believe that the investors fall within one of the categories at the time of the sale.

To be an accredited investor, the individual’s net worth must exceed $1 million, excluding the value of a primary residence, or the individual’s annual income must exceed $200,000. According to the SEC, the determination of the reasonableness of the steps taken to verify that the investors are accredited is an “objective assessment” by an issuer. An issuer is required to consider the facts and circumstances of each investor and the transaction. The final rule provides a non-exhaustive list of methods that an issuer may employ for verification.

As noted in our previous analysis, it is unlikely we’ll see hedge funds competing with large consumer brands for prime advertising space. Instead, given the target audience, we’ll likely see more tailored efforts, such as email marketing campaigns, direct phone marketing, and targeted online advertising. We are also likely to see new strategies from issuers such as speaking about funds in public and posting details on websites (which may represent quite a change considering many issuers don’t even have websites). As issuers enter into the world of marketing, they will also have to deal with the reality that the SEC is not the only regulatory agency on their radar; these issuers will need to make sure that they’re not engaging in unfair or deceptive marketing practices and drawing the ire (and an investigation or enforcement action) of the FTC.

The amendments become effective 60 days after publication in the Federal Register. For more information on this issue, please contact Frederick H. Lah, the author, or Joseph I. Rosenbaum, editor and publisher of Legal Bytes.

WOMD. Now Available at Your Nearby Staples!

I read with interest, recent reports of a 3-D printed hand gun, created by Defense Distributed, being test-fired at a gun range just south of Austin, Texas. Defense Distributed, whose website bills itself as "The Home of the Wiki Weapons Project," fired the gun in front of an observer from Forbes, and you can view the gun, named The Liberator, being test-fired in a video taken during the test and posted on YouTube. Defense Distributed also announced it would post the gun's blueprints and construction details on the company's ownDefCAD design site. For you history buffs, the "Liberator" was also the name of a single-shot pistol designed to be distributed by dropping them from airplanes flying over France during World War II.

The gun isn’t completely plastic – the firing pin is a common metal nail that can be purchased at a hardware store and can be detected by metal detectors – and that single metal nail apparently makes it legal under U.S. law (the Undetectable Firearms Act of 1988; Pub.L. 100–649, H.R. 4445, 102 Stat. 3816). The 3-D printer used to make the rest of the plastic components is a Dimension SST 3D printer made by Stratasys, which apparently now has a U.S. federal license to manufacture firearms.

Continue Reading...

New York E-Retail Ruling May Tax the Supreme Court

This post was written by Kelley C. Miller and Daniel M. Dixon.

On March 21, we posted Clouds Continue To Rain State Tax On Retailers, the most recent in a series of blog posts related to the U.S. state tax implications of cloud computing, e-Commerce and retailing. To keep the thread going, this past Thursday (March 28), the New York Court of Appeals, the highest state court thus far to consider the issue, issued a much-anticipated ruling in Overstock.com v. New York Department of Taxation and Finance (combining two similar cases brought by e-retailers Overstock.com and Amazon.com. At issue is the New York statute that requires the collection of sales or use tax from an e-retailer (a remote vendor) with no physical presence in the state, if, as part of its business model, it pays in-state residents to assist in business solicitation; and the question being litigated is whether that statute violates the Due Process Clause or Commerce Clause of the U.S. Constitution. The Trial Court—and now the Court of Appeals—have upheld the law.

Significant to the Court of Appeals’ decision is its deference to the bright-line requirement of physical presence necessary for a state to require sales or use tax collection. This standard was set forth by the United States Supreme Court in Quill v. North Dakota (504 U.S. 298; 1992). Although the Court of Appeals acknowledged that Quill is still applicable even though the “world has changed dramatically in the last two decades,” it nonetheless noted that changing the physical-presence requirement in light of the way e-retailers now conduct their business, “would be something for the United States Supreme Court to consider.” A key issue in the case was whether the in-state residents hired or engaged by Overstock and Amazon, and who were involved in soliciting business – they are often referred to as “affiliates” – were actively soliciting customers in the state or whether their actions were more akin to that of an advertiser seeking to influence buying patterns – conduct that might be seen as more passive and, accordingly, would not meet Quill’s physical presence standard.

Despite hopes that the Court of Appeals might address this issue in its decision, the majority deferred discussion of this important distinction in lieu of a more focused analysis of whether the New York statute was unconstitutional on its face. The court held that a discussion of the affiliates’ activities was not warranted as neither Overstock.com nor Amazon.com could prove there were no circumstances under which the statute could be constitutionally applied: "The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden."

The dissenting opinion, however, does address the possibility that there could be significant distinctions between those who act as sales agents for a company and those who place advertisements for a company on websites. The dissent noted that mere advertising by a remote seller, through use of an in-state affiliate that might place advertisements on websites, does not meet the Quill test for physical presence. Placing links on websites from within the state to e retailers are advertisements and not solicitations.

Reacting to the decision, Overstock.com indicated that it may ask the United States Supreme Court to review the issue. In a press release issued yesterday by Overstock.com, Acting Chief Executive Officer Jonathan Johnson noted, "Given that courts in other states have upheld U.S. Supreme Court precedent, and struck down similar laws, the matter appears ripe for resolution by the U.S. Supreme Court." To ask the Supreme Court to review the ruling in the case, a petition for writ of certiorari would be due on or before June 26.

The Reed Smith State Tax Team will be closely following developments in this case, including not only the possibility of an appeal to the United States Supreme Court, but also the status of The Main Street Fairness Act of 2013 – U.S. federal legislation currently pending in the House of Representatives (and recently given symbolic approval in the Senate) that would allow states to impose sales and use tax requirements on e-retailers (presumably engaged in inter-state commerce) even if the e-retailer does not have a physical presence in a state.

For more information regarding these developments and to stay on top of the legal wrangling in state taxation related to e-Commerce, contact Kelley C. Miller or Daniel M. Dixon directly. Of course, you can always find out more about our Cloud Computing initiative or get the assistance you need by contacting me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work.

Clouds Continue To Rain State Tax On Retailers

As you may remember, this past January, Reed Smith presented a teleseminar entitled: State Tax Update: States Can Be Taxing in a Digital World, led by Dan Dixon and Kelley Miller, who are leading the charge in keeping clients informed as the worlds of cloud computing and state tax converge - or perhaps we should say "collide."

Increasingly, states are scrutinizing the operations of cloud providers and their cloud-related business activities as they seek ways to force online retailers to collect sales tax from customers. Dan and Kelley have become recognized leaders in this area, closely monitoring all 50 state tax departments within the United States, and the dynamically evolving landscape. Dan and Kelley continue to assist clients, speak and write about new state tax developments, and have been quoted in a variety of media sources, including BusinessWeek, The Wall Street Journal, Forbes, NPR, NetworkWorld, E-Commerce Times and The Hartford Courant.

Dan and Kelley have prepared a recent Reed Smith Client Alert, entitled “The Wall Street Journal, Forbes, BusinessWeek and Fortune 500 Companies All Agree: No One Knows Taxing the Cloud Like Reed Smith State Tax!” You can read the full alert online “Cloud Computing is Taxing (Web)”, or you can download a PDF version “Cloud Computing is Taxing (PDF).”  As you may also recall, in 2010 Reed Smith launched a cloud computing initiative, commissioning a series of individual white papers, now compiled into a comprehensive work entitled, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing.”

For more information regarding this alert or to stay on top of the developments in state taxation related to cloud services, products, and platforms, from Reed Smith lawyers who really know this area, contact Dan Dixon or Kelley C. Miller directly. Of course, you can always find out more about our Cloud Computing initiative or get the assistance you need by contacting me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work.

What You Don't Know Can Hurt You

Multiple Choice Question: What do the following have in common:

“Privacy & Data Protection: Distinctions Between Surveillance and Secrecy”

“Ethics, Process, Privilege, Discovery and Work Product in the Digital Age”

“When Worlds Collide: Old Ethics and New Media”

“Outsourcing: The Law & Technology”

“The Changing Legal Landscape: Evolution or Revolution”

“Growing Your Business Internationally - What to Know Before You Go”

“Social Media, Mobile Marketing, Clouds and Crowds: (modules)

  • Advertising & Marketing in a Digital World
  • Media & Entertainment: Digital Rights and Wrongs
  • Financial Services, Payments & E-Commerce
  • Online Gaming, Gambling & Virtual Worlds
  • Apps & M-Commerce
  • Context & Geo-Marketing: Wi-Fi, Bluetooth, SMS, RFID, QR Codes & Augmented Reality
  • Operations & Performance, Security, Compliance and Interoperability
  • Wired & Wireless: Sweepstakes, Contests, Product Placement & Branded Entertainment
  • Anti-Social? Communication & Public Relations for Companies, Employees & Investors
  • Behavioral Advertising, Endorsements, Blogs, Buzz, Viral, Street Teams & Word of Mouth
  • Labor & Employment Policies in a Networked Age: The Good, The Bad & The Ugly
  • Crowd Sourcing, Crowd Funding, Crowd Investing: Today & Tomorrow

“Privacy, Data Protection & Globalizing Technology: Digital Commerce Brings Legal Challenges”

“Comparative Advertising Issues: Multinational Brands; Global Challenges”

“Direct to Consumer: Legal Challenges in the Digital Marketplace”

“Out of Control? Challenges to Privacy & Security in a Big Data World.”

 

Answers: (a) Seminars & Presentations Given; (b) Seminars & Presentations Available; (c) Targeted at Lawyers; (d) Targeted at Commercial and Business Management; (e) Relevant to Small-to-Medium Size Business; (f) Relevant to Multinational, International & Global Companies; (g) None of the Above; or (Y) All of the Above.

If you guessed (Y), you are correct. Let us know if any of these, a combination of these or a customized version of these or any other presentations might be right for you. Hey, you never know, but what you don’t know, can hurt you. For more information, contact me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work.

A New Twist to Chubby Checker - Oh No, Not an App for That!

Chubby Checker, whose real name is Ernest Evans, is suing Hewlett Packard for trademark infringement. Chubby Checker, an iconic music entertainer, rose to fame when his song “The Twist” first reached No. 1 on the charts in 1960 and his appearances on the "Ed Sullivan Show" and "American Bandstand" helped spawn a national, if not international, dance frenzy. His 2008 song “Knock Down the Walls” reached the top of the dance charts and sparked a brief comeback for the music legend.

Ernest Evans Corporation, one of Mr. Checker’s companies, was originally granted trademark rights for the use of his name in connection with musical performances. Later, The Last Twist Inc., another of his companies, was granted trademark rights for “Chubby Checker’s” in connection with food products, based on the release of a line of snack foods.

The mobile “app” named “The Chubby Checker” – no, we couldn’t possibly make this up – ostensibly enabled users who downloaded it to calculate the size of a male penis based on the individual’s shoe size. The development shop named Magic Apps, now non-existent, had touted the international appeal of the app, noting “The Chubby Checker” allows calculations based on U.S., UK and European shoe sizes.

Lawyers for Mr. Checker had sent HP a cease-and-desist letter last September and apparently the app was removed from all HP or Palm-hosted websites later that month. In the lawsuit filed in the U.S. District Court for the Southern District of Florida, lawyers for Mr. Checker, now 71 years old, claim that "irreparable damage and harm" has been done to the entertainer’s name and reputation, are seeking an injunction, and are asserting claims of millions of dollars in damages arising from “The Chubby Checker” app that Hewlett Packard Co. made available on Palm mobile devices starting in 2006. You may recall that HP acquired Palm in 2010, and a year later opted to shutter the production of Palm hardware, although it continued to provide technical support to existing Palm users.

The suit alleges that purchasers of the app, as well as anyone simply browsing the webpage, had been misled into believing that Chubby Checker had endorsed the app, and that the use of his name would confuse users who might reasonably conclude the singer had some association with the app bearing his name.

The lawsuit alleges that the defendants made millions of dollars exploiting the name of one of the greatest musical entertainers of our time, and claims the "Defendants' use of the name 'Chubby Checker' in its app is likely to associate the plaintiffs' marks with the obscene, sexual connotation and images evoked by defendants' app 'The Chubby Checker.'” You can read the filing in its entirety right here at Evans, et al. v. Hewlett Packard Company, et al., Case 2:13-cv-14066-JEM.

The Advertising, Technology & Media Law Group at Reed Smith has lawyers with decades of experience in working with advertisers and agencies, marketing and promotional companies, online, mobile, and traditional, handling matters involving celebrity endorsements – good, bad and sometimes ugly. Let us know if you need us. Call me, Joe Rosenbaum, or any of the Reed Smith lawyers with whom you regularly work. We are happy to help.

State Tax Update: States Can Be Taxing in a Digital World

Please join Reed Smith lawyers Dan Dixon and Kelley Miller Thursday, January 31 at Noon EST (9 a.m. PST; 11 a.m. CST) for "Clouds, Codes, and Crunching Numbers: An Update on Current Multi-State Tax Developments in the Taxation of Electronic Goods and Services." Participants will hear about the latest state developments and trends, including affiliate nexus, “Amazon” legislation, states’ tax treatment of various digital products, software, cloud computing, web-based & web-hosting services, information services, data processing, and sourcing rules for digital goods and services transactions. Don’t miss this timely teleseminar!

Registration link: Click here to register for this seminar.

Mobile Money, Mobile Risk - The Future of ePayment Systems

Earlier this week, the editorial staff of the UK-based publication e-Finance & Payments Law & Policy, interviewed Joseph I. Rosenbaum, New York-based partner and Chair of Reed Smith’s global Advertising Technology & Media law practice, in connection with its cover story for the January 2013 issue. The stimulus for the initial story was the release late last year of a report by the U.S. Federal Deposit Insurance Company (FDIC) regarding the risks attendant to the growth and evolution of the mobile payment industry, and the use of mobile contactless payment technology by consumers and merchants in routine purchase transactions (e.g., NFC, Bluetooth, RFID, SMS, Wi-Fi, and WAP enabled devices generally.)

While the cover story is still in the process of being edited for publication, the editorial staff felt that publishing the full interview separately was itself newsworthy. So follow this link and you can read the full text of the e-Finance & Payments Law & Policy interview with Joseph I. Rosenbaum, partner at Reed Smith LLP.

You can also read the FDIC report, issued in its Supervisory Insights - Winter 2012 release, right here: Mobile Payments: An Evolving Landscape.

Of course, if you need help or more information, contact Joseph I. Rosenbaum (jrosenbaum@reedsmith.com), who also leads the ATM Mobile Marketing initiative, or feel free to call upon any of the Reed Smith lawyers with whom you regularly work. We are happy to help.

Airlines May be Mobile But Delta Apps Irk California Regulators

In a civil action filed in California (People v. Delta Air Lines Inc., California Superior Court, San Francisco, 12-526741), the California State Attorney General’s office alleges that Delta Air Lines was distributing a mobile application without a privacy policy, in violation of the California Online Privacy Protection Act of 2003 (OPPA), which became effective July 1, 2004. The California statute provides a penalty of up to $2,500 for every violation.

Among other things, the Delta ‘app’ allows customers to check in, and display and make reservations; and, according to the lawsuit, Delta has been allowing customers to download and use the ‘Fly Delta’ app without a privacy policy, since at least 2010.

Of course, Delta is not the only company with user-friendly mobile apps for on-the-go busy travelers, and I’m guessing that company lawyers are now scrambling to determine if their apps are in compliance and whether changes need to be made and, just as importantly, how to make those changes to ensure compliance with the law and still maintain the customer friendliness mobile users are accustomed to and demand.

Our Advertising, Technology & Media law practice can help you navigate the challenges of compliance – preventive law as well as representing clients when the regulators come calling . . . and we have a group dedicated to legal support when your needs, defensive or as a defendant, turn to privacy, data protection and identity theft. So if you need help or more information, contact me, Joseph I. Rosenbaum (jrosenbaum@reedsmith.com), or any of the Reed Smith lawyers with whom you regularly work.

Bond Meets Bond Street: Mannequins are Watching You Shop

An Italian company, Almax S.p.A., is selling a mannequin (price tag about $5,000) in a development that is being closely watched – literally – by retailers, consumers and, of course, regulators and privacy gurus. The new product, marketed as the EyeSee Mannequin, contains a camera embedded in the mannequins eyes, and according to the company’s website: “This product will do much more; it would make it possible to 'observe' who is attracted by your windows and reveal important details about your customers: age range; gender; race; number of people and time spent.”

In Europe and the United States, the mannequins are making sporadic appearances – perhaps in showrooms and even in street-side display windows, gathering data as people saunter by the store gazing into the windows. According to reports, Almax may also be testing auditory capabilities that would allow a mannequin to not only see, but to hear what customers are saying as well. Hey, did you just call that mannequin a dummy?

 


(Image from Almax Website)

 

The EyeSee Mannequin has a camera placed as an "eye" that includes facial recognition technology that records information about passersby, such as their gender and race, and the software guesstimates the approximate age of each person scanned by the camera. Typically, cameras can be used in retail stores for security, but in many jurisdictions the shop owners are required to post signs alerting consumers browsing the aisles that they are subject to being recorded. Now, the EyeSee Mannequin gives retailers the ability to collect and store information for marketing purposes – a commercial purpose that may put the technology squarely under a microscope (these vision puns really must stop), since it collects personal data about individuals without their consent. That said, the current product is only supposed to record information, not any actual photographs or image scans, but . . . it could, couldn’t it?

Need to know more about the legal implications of technology in advertising and marketing? Concerned about your rights (and wrongs) in deploying surveillance equipment and gathering data and information about customers and consumers? Are you up-to-date on the latest privacy and compliance requirements? Not sure? Need to see these issues more clearly? OK, don’t be a dummy (I mean mannequin) and consult your lawyer. Don’t hesitate to contact me, Joseph I. Rosenbaum, or the Reed Smith lawyer with whom you regularly work. We would be happy to see you, hear you and help you.

New Jersey Casinos Permitted to Offer Mobile Gambling on Premises

In a press release dated October 9, 2012, the New Jersey Office of the Attorney General, Division of Gaming Enforcement, unveiled new temporary regulations applicable to mobile gaming in Atlantic City casinos. Procedurally, these regulations will remain in effect as of October 8 for 270 days, while the Division of Gaming Enforcement hopes to publish final regulations within 60 days.

With a focus on preventing underage gambling and protecting the security of mobile gaming, these new regulations will permit established and licensed casinos to enable mobile gambling on their property – ostensibly in every "recreational" area, but not in parking lots and garages. The regulations require providers of software and other technical means to exploit mobile gambling, to also obtain licenses as gaming-related service providers.

If you want to review the press release and materials, you can go to the New Jersey Office of the Attorney General website, or you can download and read a copy of the new temporary regulations right here N.J.A.C. 13:69O [PDF].

Of course, if you need help or more information, contact me, Joseph I. Rosenbaum (jrosenbaum@reedsmith.com), or any of the Reed Smith lawyers with whom you regularly work.

Insight from California's Special Assistant Attorney General for Technology

In a recent interview with Travis LeBlanc, California’s Special Assistant Attorney General for Technology, Amy Mushahwar and Joshua Marker of Reed Smith’s Data Privacy, Security & Management practice, obtained some interesting insight on California’s new Privacy Protection and Enforcement Unit. Mr. LeBlanc addresses current and upcoming privacy trends, and the focus of California’s enforcement actions.

You can read the entire discussion and the insights obtained right here: Reed Smith Attorneys Interview Travis LeBlanc, of California's New Privacy Protection and Enforcement Unit

As always, if you need help or more information, contact the Reed Smith lawyers mentioned above; me, Joseph I. Rosenbaum; or any of the Reed Smith lawyers with whom you regularly work.

Old Ethics and New Media: Reconciling Legal Ethics with New Technology

Colleagues and clients: Join us tomorrow, Friday, September 21 at Noon EDT (9 a.m. PDT; 11 a.m. CDT) for our timely seminar “When Worlds Collide: Old Ethics and New Media” discussing the ethical issues and implications arising from social media, cloud computing, mobile and wireless technology, and the latest in legal thinking, bar association rules and judicial rulings, among other things. Think you know the rules about metadata, discovery on social networks, litigation holds in cyberspace, and much more? Not sure? Join us for this one-hour session focusing on lawyers, law firms and the legal and regulatory processes that are being turned upside down by technology. Join us as the worlds of ethics and technology collide. Registration is open to all and, for licensed attorneys, attendance will provide 1.0 hour of Ethics CLE/CPD credit for UK, California, Pennsylvania, Illinois, New Jersey, and experienced New York lawyers, and we can file applications in Delaware, Virginia and elsewhere as needed. Clients can register by contacting Joe Maguire at jmaguire@reedsmith.com or +1 202 414 9484, as the registration link below will not work for anyone outside Reed Smith.

Registration link: Click here to register for this course.

MasterCard & Visa to Merchants: Let's Settle This the Old Fashioned Way!

Whether you are a payment instrument (think credit, debit, gift, stored value, prepaid cards and more) expert or a retail merchant, a corporate purchasing manager or, like the rest of us, a consumer, you cannot have escaped the news, announced this past Friday (Friday the 13th), that Visa and MasterCard have agreed to settle a lawsuit brought by some merchants in connection with the fees merchants pay to be permitted to "accept" credit cards. I certainly couldn't escape it. In fact, Joe Rosenbaum (that's me) is quoted in yesterday's American Banker article "'We Won' vs. 'You Lost': Reactions to Credit Card Settlement" written by Maria Aspan and Victoria Finkle.

While the settlement must still be approved by the court and provides billions of dollars in payments to merchants, the most contentious piece of this settlement relates to the so-called "interchange fees" (sometimes referred to as a "discount rate" – no pun intended) that refers to the charge imposed on merchants by the credit card associations and owners for their right to accept their branded credit cards from consumers.

When a merchant accepts a credit card, that merchant must have a relationship with the "brand" on the card (e.g., American Express®, Discover®, JCB®, MasterCard®, Visa®, Diners Club®, etc.), either directly or through a member institution. Because the brand owners operate vast settlement and transaction processing networks that allow you to use your card to buy a suit in Hong Kong or King Kong at a toy store, they charge merchants an interchange fee for the privilege of riding their networks – card acceptance translates into more business, say the brand owners.

If the settlement is approved, it will see MasterCard and Visa modify their operating rules to permit merchants to charge the consumer more to pay with a card. Merchants will have the right to "surcharge" the use of a card, rather than if you use cash or another payment method.

Where will this lead – it's complicated. Stay tuned. The National Association of Convenience Stores has announced it has already retained counsel to challenge approval of the proposed settlement. The association says the settlement doesn't go far enough and, for example, doesn't put a limit on how high the brand associations can raise the interchange fees charged to merchants. Whether approved or whether the law suit goes forward, or some other settlement is reached – it's complicated.

So, if you need lawyers to help you navigate the charted and uncharted waters of the financial seas ahead, talk to us. It's what we do. Contact me, Joseph I. ("Joe") Rosenbaum, or any of the lawyers at Reed Smith you routinely work with. Our FIG (Financial Industry Group) lawyers are experienced in virtually every aspect of the law or finance, financial institutions and payment systems – from privacy and GLB, to chargebacks and B2B. Call us, you'll like us.

What's in a (Domain) Name? ICANN by any other name would still...

On June 13, the Internet Corporation for Assigned Names and Numbers (ICANN) revealed the list of applications for new gTLDs to be launched as part of its proposed expansion of the top-level domain space. A total of 1,930 applications were filed for strings, including brand names, generic words and abbreviations, geographic terms, and non-ASCII strings (such as Chinese or Arabic). If this is allowed to move forward as it is currently envisaged, it will be a striking change to the domain name system, with dramatic new risks and evolving threats, as well as opportunities. Brand owners – applicants or not – need to strategize and prepare now, to protect their marks and brands. Some may also need to decide whether or not to challenge any pending applications. 

Reed Smith has assembled a global team of thought-leaders to counsel and guide you. Experienced lawyers who have been following and assisting for years – ever since the proposal was first announced. Reed Smith is now offering a teleseminar intended to cover:

  • How to develop a strategy to protect your rights – marks and brands
  • What brand owners should be thinking about now
  • Commenting on and objecting to applications
  • The Trademark Clearinghouse and other supposed protections in the new system
  • Updates on industry, governmental and regulatory efforts to provide more protection for brands and trademark owners

You can register through the link here: The gTLD Applications Have Been Revealed: What Brand Owners Must Know Going Forward.

As always, if you need legal or regulatory counsel, call me, Joseph I. (“Joe”) Rosenbaum, or any of the lawyers highlighted in the full Client Alert or, of course, the Reed Smith lawyer with whom you regularly work.

Taxing Storm Clouds Gather Over Utah

In June 2010, we announced the launch of an initiative focusing on Cloud Computing ('Transcending the Cloud' - Reed Smith Announces White Paper Series & Legal Initiative on Cloud Computing), showcased with a series of individual and topical white papers, in time being compiled into a comprehensive work entitled, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing.” One of the first in our series was a paper on the state tax implications of cloud computing, entitled: “Pennies From Heaven”

Just as clouds have different shapes, sizes and shades of gray, different states are approaching taxation of cloud transactions differently. Well now, our State Tax practice reports that taxing storm clouds are gathering over Utah. In a marked about-face from the state's previously issued guidance, the Utah Sales Tax Commission has ruled that web services that charge a fee constitute sale of a service, subject to sales tax. The implication being that mere access of or to an application is enough to subject the provider to a tax liability.

Notable for cloud computing providers, even though the product at issue was access to remotely hosted software that allowed users to conduct webinars "in the cloud," allowing customers to download a free device application for access to that service had the state seeing "software" (sales of which are subject to sales tax in Utah). With at least one state looking at clouds from the application side now, it will be interesting to see if other states quickly follow.

For more information about the Utah ruling, or to stay on top of the developments in the taxation cloud products and platforms, visit www.taxingtech.com. To get legal assistance and guidance from someone who really knows that state of state taxation of cloud computing, contact Kelley C. Miller directly. Of course, you can always find out more about our Cloud Computing initiative or get the assistance you need by contacting me, Joseph I. ("Joe") Rosenbaum, or the Reed Smith attorney with whom you regularly work.
 

When Online Games, Health & Life Sciences and Crowd Sourcing Combine

This time, the law of unintended consequences is bringing scientists and online gamers together in a crowd sourcing manner hitherto unimaginable.

An article in this month’s edition of the journal Nature Structural & Molecular Biology has announced (citing both research scientists and online gamers as co-authors of the article) that through a 2008 purpose-oriented video game developed at the University of Washington in 2008 – Foldit – the structure of an enzyme, one used in complicated customizing of retroviruses, was accurately modeled. 

Who cares and how does this affect us? Well, as a former biochemist wannabe, if you can model the structure of these proteins, you can better understand how diseases are caused and correspondingly develop drugs to block or stymie the progress of those diseases.

Amazingly, gamers were able to produce an accurate model of an enzyme whose structure had eluded scientists for a very long time in only three weeks and the report notes, referring specifically to medication against the human immunodeficiency virus (HIV) for which an understanding and design of antiretroviral drugs is absolutely critical. Seth Cooper, one of the creators of Foldit noted that "Games provide a framework for bringing together the strengths of computers and humans. The results in this week's paper show that gaming, science and computation can be combined to make advances that were not possible before."

If you thought the intellectual property, licensing, user generated content, crowd sourcing, cloud sourcing, social media legal issues were already enough arising from scientific research, online gaming and crowd sourcing alone were enough to make your head spin, conjure up the implications when the term ‘convergence’ is applied to any two or three of these disciplines. Isn’t it time you had legal counsel and representation who can seamlessly help navigate them while your teams are busy solving the health care and medical problems of the world?

If you want to know more about how lawyers who understand can help your business, feel free to contact me, Joe Rosenbaum, or any of the Reed Smith attorneys with whom you regularly work.

BNA Highlights Health IT Issues Raised by Reed Smith Attorneys

The August 29, 2011 issue of BNA’s Health IT Law & Industry Report (Vol. 3, No. 36), describes some of the major legal and contractual issues raised when health care industry companies and professionals are considering moving to a cloud computing environment. Joseph I. (“Joe”) Rosenbaum was interviewed by the author, Kendra Casey Plank, for her article, entitled, “Attorney: Cloud Services Offer Affordable Solutions but Raise Privacy, Security Risks.” The article not only quotes Rosenbaum extensively, but also refers to Reed Smith’s White Paper series “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing,” which began in June 2010 (see "Transcending the Cloud" - Reed Smith Announces White Paper Series & Legal Initiative on Cloud Computing). The series is updated regularly with individual articles on topics ranging from government contracting and state tax, to the most recent White Paper entitled, “Health Care in the Cloud – Think You Are Doing Fine on Cloud Nine? Hey, You! Think Again. Better Get Off of My Cloud,” which Rosenbaum and Reed Smith Associate Vicky G. Gormanly wrote and which was posted on the Legal Bytes blog August 5, 2001 (Transcending the Cloud - Health Care on Cloud 9? Are You Doing Fine?). What’s the state of your health care compliance? Are you doing fine?

Read the White Paper and, if you have any questions or need help, contact Joe Rosenbaum or Vicky Gormanly, or the Reed Smith attorney with whom you regularly work.

Transcending the Cloud - Health Care on Cloud 9? Are You Doing Fine?

If you are a music aficionado, you will remember that years ago, The Temptations sang “I’m Doing Fine on Cloud Nine.” 

 

 

If you are a health care provider paying attention to the buzz about cloud computing, you may be concerned about migrating your technology, your data and your applications to a cloud environment.  Or, let’s say you are just confused about the implications. You are not alone.

That’s precisely why our Cloud Computing initiative exists. To provide you with a guidance system – navigational tools to allow you to see sunshine, even on a cloudy day. So, as part of our ongoing commitment to keeping abreast of legal issues, concerns and considerations in the legal world of cloud computing, here, from Vicky G. Gormanly and Joseph I. Rosenbaum, is the next chapter in Reed Smith’s on-going series, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing,” entitled “Health Care in the Cloud – Think You Are Doing Fine on Cloud Nine? Hey, You! Think Again. Better Get Off of My Cloud.” This white paper examines the considerations and concerns that arise for the health care industry and the industry’s associated suppliers, vendors and providers in the wake of complex and evolving regulation and scrutiny – most notably, in the privacy and data protection of medical information – of electronic health records.

As we do each time, we have also updated the entire work, so that in addition to the single ‘Health Care in the Cloud’ white paper, you can access and download a PDF of the entire “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing” compendium, up to date and including all the previous chapters in one document.  After reading the article, instead of doing fine, you just may want to take the advice of The Rolling Stones and "Get Off of My Cloud" until you consult your legal advisors.

 

 

Of course, feel free to contact Vicky Gormanly or Joe Rosenbaum directly if you have any questions or require legal counsel or assistance related to this white paper. Make sure you subscribe via email or get the Legal Bytes RSS feed so you are always in touch with our latest information. Of course, if you ever have questions, you can always contact any Reed Smith attorney with whom you regularly work.

ANA Voices Opposition to ICANN's Proposed New gTLD Program

If you have been reading LegalBytes, you already know that the International Corporation for Assigned Names and Numbers (ICANN) approved a plan to allow the proliferation of new generic top-level Internet domain names (Nightmare on Brand Street: ICANN Adopts Unlimited gTLDs). We hope you also know that a brief, executive-level presentation was made available entitled "The New gTLDs: What Does It Mean for Brand Owners?" that you can still download from "ICANN. You Can. We All Can: Own Your Own gTLD, Of Course!"

Well since then, all has not been quiet on the Western, Eastern, Northern or Southern Fronts, and today, in a letter to ICANN, the Association of National Advertisers ("ANA") detailed major flaws in the proposed ICANN program. You can read the ANA press release, as well as comments regarding ICANN's administration of the root server system for the Internet that the ANA filed with the National Telecommunications & Information Administration (U.S. Department of Commerce).

Full disclosure: Reed Smith is representing the ANA in this initiative, with the support of other associations and organizations, to put ICANN on notice that the program will be economically disastrous and is unjustified by reports and experts relied upon by ICANN. The starting point for inquiring minds is the simple question: What problem or concern is this new program intended to address? The next question might be: At US$185,000 per application, plus additional annual fees, hosting or domain administration costs; dispute resolution expenses; and the added staff and monitoring (not to mention that companies will not simply abandon their existing domains (e.g., the dot com world); how can the Department of Commerce explain to small- to medium-sized businesses or start-up and emerging-growth companies that this additional cost is well worth it?

If you ask me, there is no shortage of questions, but an apparent paucity of answers. While there may be an emerging chorus of opposition, companies are already being forced to spend money hiring consultants, conducting analyses, commissioning internal task forces—all to study the impact, and determine if they should fight, apply or pursue any number of alternatives, in response to a program of questionable need and more questionable value. But then, that's just my humble and slightly biased opinion.

So if you are stimulated to act or just to ask, you can contact any member of Reed Smith's TLD Task Force: Doug Wood at +1 212-549-0377 or dwood@reedsmith.com; Judy Harris at +1 202 414 9276 or jharris@reedsmith.com; John Hines at +1 312 207 3876 or jhines@reedsmith.com; Alex Klett (Germany) at +49 89 20304 179 or aklett@reedsmith.com; Amy Mushahwar at +1 202 414 9295 or amushahwar@reedsmith.com; Brad Newberg at +1 703 641 4272 or bnewberg@reedsmith.com; Bo Phillips at +1 213 457 8311 or rphillips@reedsmith.com; or Joe Rosenbaum at +1 212 702 1303 or jrosenbaum@reedsmith.com

The State of Cloud Computing Can Be Taxing - Want to Understand Why?

Back in June 2010 - more than a year ago - we announced the launch of a new Reed Smith initiative focusing on Cloud Computing (see 'Transcending the Cloud' - Reed Smith Announces White Paper Series & Legal Initiative on Cloud Computing),showcased with a series of individual and topical white papers, in time being compiled into a comprehensive work entitled, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing.” As most of you know, this brave new world, with new providers, new economic models, new access plans, and broadened capabilities, has grown, and over the past year we have released nine individual white papers, with more on the horizon and updates to existing papers as the legal and technology environments evolve. One of the first in our series was a paper on the state tax implications of cloud computing entitled: “Pennies From Heaven.”

Just letting you know our State Tax Practice is hosting a Reed Smith teleseminar on recent developments in state taxation on the subject, and you can view the invitation and sign up through the registration link on the invitation. Just head to: “Clouds, Codes and Crunching Numbers: An Update on Current State Multi-State Tax Development and Trends in the Taxation of Electronic Goods and Services” and sign up today!

Of course, make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information; and if you have any questions about our Cloud Computing initiative or need help, feel free to contact me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work. We are happy to help.

Let's be Frank! Actually, Let's Be Dodd-Frank. Can You Hear Me Now?

Financial institutions need to worry about Dodd-Frank (the Dodd-Frank Wall Street Reform and Consumer Protection Act). After all, “Wall Street,” “Reform” and “Consumer Protection” don’t exactly conjure up images of phone, gas and electric lines being inspected and regulated by auditors wearing suits and carrying briefcases.

If you have been a loyal Legal Bytes reader, you probably know the next line:

Well guess what?

A section of the Dodd-Frank Act amended a section of the Fair Credit Reporting Act (the “FCRA”). The amendment, which becomes effective today, July 21, 2011, requires that anyone who issues a risk-based pricing notice to a consumer (a notice required when a credit report and credit score are used in connection with the extension of credit to a consumer) must now include the applicant’s credit score directly in or with the notice. So when a company sends you a notice under the FCRA in order to comply with the requirements of the Equal Credit Opportunity Act (“ECOA”), it needs to tell consumers it has used a credit report, “a record of your credit history” and “information about whether you pay your bills on time and how much you owe creditors.”

Public utilities, telecommunications companies and many others use credit scoring models, and even though these may not be based on your general credit history, the FTC is now taking the position that these companies are subject to the provisions of Dodd-Frank, and credit scores must be disclosed to the consumer.

Hey, don’t take my word for it. Read the entire Reed Smith Client Alert [PDF] authored by our experts: Roberta G. Torian in Philadelphia, Robert M. Jaworski in Princeton and Mark F. Oesterle in Washington, D.C. Then you will see how really complicated it is and can call them for help.

Of course, you can always contact me or the Reed Smith attorney with whom you regularly work, if you have any questions or require legal counsel or assistance.

ICANN. You Can. We All Can: Own Your Own gTLD, Of Course!

A few days ago, Legal Bytes announced that the International Corporation for Assigned Names and Numbers (ICANN) approved a plan to allow virtually unlimited new top level Internet domain names – each is referred to as a gTLD (Nightmare on Brand Street: ICANN Adopts Unlimited gTLDs).

In response to numerous questions and requests for more information, here is some additional material for your consideration.

First, you can download a copy of the current gTLD Applicant Guidebook.

Second, you can read or download a copy of a brief, executive-level presentation entitled, "The New gTLDs: What Does It Mean for Brand Owners?" describing the changes, the implications and some additional information that may be relevant to brand owners in evaluating the implications of the new scheme.

As always, if you have further questions, you can contact me directly or any member of our gTLD team: Douglas J. Wood, John L. Hines, Joseph I. RosenbaumCynthia O'Donoghue, Dr. Alexander R. Klett, LL.M., Steven J. Birt and Brad R. Newberg.

Payment Card Industry Takes a Swipe at Virtual Security

Someone in the payment instrument, payment processing, or payment systems environment must be living under a rock if he or she has not heard of or been affected by the Data Security Standards (DSS), or “PCI-DSS” as it has been referred to in the industry, promulgated and released by the Security Standards Council of the Payment Card Industry Association (PCI). Although the original impetus for the credit-card-driven security standards was combating identity theft and credit card fraud in the wake of the data breaches and compromised (or potentially compromised) databases containing sensitive consumer payment account information, the standards have become the de facto starting point for any compliance security standard in the payment industry.

Last week, the PCI Security Standards Council released new comprehensive guidelines for PCI compliance in virtual card holder data environments dealing with consumer payment system and payment transaction security in a virtual environment. Reed Smith lawyers who work in this area consistently and who have a wealth of experience with information security and financial services, have put together a client alert entitled: "Is the PCI Security Standards Counsel Preparing for Cloudy Weather?"

Credit, debit and prepaid cards; smart cards and chip cards; gift cards and stored value cards; co-branded cards and loyalty rewards programs; corporate cards, fleet cards and purchasing cards; data protection and privacy; information security, identity theft and data breaches; micro, digital and virtual payment systems – E Commerce; The Fair Credit Reporting Act; Regulation E; Regulation Z; Credit Card Act of 2009 (see Credit Card Act of 2009: Act I, Scene 1 or just search the Legal Bytes blog)! Do any of these terms apply to you? Talk to us. It’s what we do. Contact any of the lawyers listed in the Alert, contact me, or contact the lawyer at Reed Smith with whom you routinely work, and we will make sure we help you or connect you to someone at Reed Smith who will be happy to do so.

Nightmare on Brand Street: ICANN Adopts Unlimited gTLDs

The International Corporation for Assigned Names and Numbers (ICANN) has approved the plan for unlimited new gTLDs (i.e., top level Internet domain names) and will soon start taking applications. Brand owners dreading the adoption of a system permitting unlimited gTLDs now face the reality of this dramatic change to the domain name system.

While the domain name system is currently limited to 22 "generic" gTLDs (.com, .org, .net, .info, .biz, etc.), country codes (e.g., .us, .uk, .cn), and certain special community-sponsored domains (e.g., the .xxx for adult entertainment), the new rules permit entities anywhere in the world to apply for and, if granted rights by ICANN, to operate a gTLD for virtually any term, word or phrase, including your names, trade names, trademark terms, brand and product names.

My partner, John L. Hines, has been following this occurrence and is about as close to these developments and their implications as any legal advisor can be; but we have a global team of lawyers – Douglas J. Wood, Cynthia O'Donoghue, Dr. Alexander R. Klett, LL.M., Steven J. Birt and Brad R. Newberg – who, with John, have put together a Client Alert entitled “.anything On Its Way: New Generic Top Level Domains Will Launch January 12”.

Of course, if you need additional information or guidance, or both, please contact any of them. They will be happy to help.

Transcending the Cloud - Advertising & Marketing Make Rain

This post was written by Joseph I. Rosenbaum and Keri S. Bruce.

As part of our ongoing commitment to keeping abreast of legal issues, concerns and considerations in the legal world of cloud computing, most of you know we have been publishing regular topical updates to our Cloud Computing initiative – new chapters and white papers intended to provoke thought, stimulate ideas and, most of all, demonstrate the thought leadership Reed Smith attorneys bring to bear when new and important trends and initiatives in the commercial world give rise to new and interesting legal issues. If you didn’t know, re-read the previous run-on sentence!

So here, from Joe Rosenbaum and Keri Bruce, is a glimpse at some issues that apply to the world of advertising and marketing arising from Cloud Computing. This next chapter in Reed Smith’s on-going series, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing,” is titled “Cloud Computing in Advertising & Marketing: Looking for the Silver Lining, Making Rain.” This white paper tries to examine the considerations and concerns that arise within the advertising and marketing industries in the wake of complex and evolving regulation and scrutiny. We hope it provides some insight into the issues and the factors that apply, even as the industry and the regulatory landscape continue to evolve.

As we do each time, we have updated the entire work so that, in addition to the single "Advertising & Marketing" services’ white paper, you can access and download a PDF of the entire “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing” compendium, up to date and including all the previous chapters in one document.

Of course, feel free to contact Joe Rosenbaum or Keri Bruce directly if you have any questions or require legal counsel or assistance related to advertising and marketing. Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. And if you ever have questions, you can always contact any Reed Smith attorney with whom you regularly work.

China Announces State Internet Information Office

This post was written by Joseph I. Rosenbaum, Frederick H. Lah, Zack Dong and Amy S. Mushahwar.

On May 4, 2011, the Chinese government announced it was establishing the State Internet Information Office, an office dedicated to managing Internet information. According to the announcement, this office will be responsible for directing, coordinating, and supervising online content management. The office will also have enforcement authority over those in violation of China's laws and regulations (see, for example, China sets up office for Internet information management). While there are reports that many believe the purpose of the new office will be to censor political and social dissidents (see, China Creates New Agency for Patrolling the Internet, the office may also have a key role in thwarting illegal spamming and other dubious data practices.

Further, many see the establishment of this office as another step forward for the Chinese in terms of establishing their own data-protection regime. China has long been considered as lagging behind other countries in terms of their data-protection standards (quite possibly by design), and with no comprehensive data privacy law, businesses have had little guidance concerning the handling of personal data. China published the draft Personal Information Protection Measures in 2005, but those Measures have not yet been adopted and little progress seems to have been made since then. However, in February 2011, China issued a draft of the "Information Security Technology - Guide of Personal Information Protection" ("Guidelines") to address the lack of guidance and standards surrounding online information practices in China. The Guidelines include standards with respect to collecting, processing, and using data, and there are provisions related to the transfer of data to third parties. While the Guidelines are technically non-binding, they still provide important guidance for businesses in China on how to protect the online information of China's citizens. With the Guidelines still under review, Reed Smith lawyers will continue to monitor developments to see what form the Guidelines will take in the future.

If you have or are considering a presence in China, you need to know and be attentive to many things, if you are to succeed in the Chinese marketplace. That’s why you should contact Frederick H. Lah in our Princeton office, Zack Dong in our Beijing office, Amy S. Mushahwar in our Washington, D.C., office, me, or the Reed Smith lawyer with whom you regularly work. When you need legal guidance or have questions about regulations that apply online, on the Web, and across the Internet, in almost any part of the world, let us know. We are here to help.

Free Speech on the Internet - India Goes Schizophrenic

Unreasonable restraints on free speech? India? Well, you decide. According to an article published today in the Pittsburgh Post-Gazette, storm clouds are brewing over just how far the government should and can go in restricting free speech on the Internet. Indeed—just how ambiguous the regulations can be such that interpretation becomes a subjective problem, enforceable at the discretion of regulators.

Unfortunately, the new rules (referred to as “Information Technology (Intermediaries Guidelines) Rules, 2011”) stem from a 2008 amendment, widely supported by Internet service providers (I.T. Act 2008) to an Indian information technology statute first enacted in 2000. For a history of the Indian legislation, see Information Technology Act 2000 (ITA-2000).

The Amendment removed intermediary liability of Internet service providers, many of whom are represented by the Internet and Mobile Association of India, for any content created by third parties and for which the ISP played no active role in creating. While the removal of passive ISP intermediary liability is one of growing consistency in the international community, the regulations broadly empowering officials to curtail free speech on the web are not.

Growing trend, justified by security? Aberration spawned by immediate and local concerns? Abuse of power? Reasonable trade-off for protection of society? Ahh, but whose society? Where is the balance? Who decides?

Take a look at the regulations, then you decide. But if you need legal guidance or have questions about regulations that apply to the Internet—internationally, multi-nationally or domestically, in almost any part of the world—let us know. We are here to help.

Cloud Computing - Clouds Can Sometimes Be Storm Clouds

This post was written by Joe Rosenbaum and Adam Snukal.

Among others news publications, CNN Money just recently reported that Amazon.com’s cloud-based Web service EC2 suffered a “rare and major outage” this past Wednesday that affected several online sites it supports, including Reddit, HootSuite, Foursquare and Quora. Amazon.com hosts many major websites on its servers through its cloud-based service and, in total, “[t]housands of customers hitch a ride on Amazon's cloud, renting space on its servers.” The recent outage crashed several customer sites and created glitches of varying degrees on others.

As cloud-based Web services have proliferated, the risks associated with major outages for companies dependent on cloud-based services have become a reality. This recent outage, and potentially others like it, could create reputational risk not only to the cloud providers, but also to those who use the cloud computing services of those providers for their technology infrastructure – processing, applications and data – exposing them to contractual liabilities for failure to meet promised service levels, breaches of performance representations and warranties, and even potential security and data breaches. All these and more, possible legal and contractual problems arising from the use of and reliance on cloud computing. These potential risks should be eliminated or mitigated, and while contracts cannot always guarantee operational integrity or performance, they can provide indemnities and remedies that offer a measure of protection or mitigation in many circumstances.

Reed Smith has been at the forefront of cloud computing legal thought-leadership and risk-mitigation strategy for our clients. Our lawyers have significant U.S., international and multinational experience in implementing strategies, such as service level agreements and risk-mitigating tools that help limit risks associated with cloud-based computing and cloud service outages. Indeed, to appreciate the risks, one need only look to one of the very first articles by Rauer Meyer, entitled When the Cloud Bursts – SLAs and Other Umbrellas, drawn from Reed Smith’s on-going series – one that you can view or download entirely in up-to-date form – entitled "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing." You can access and download a PDF of the individual article or the entire "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing" compendium, up to date and including all of the previous chapters in one document.

Of course, feel free to contact Christopher G. Cwalina or Daniel Z. Herbst or Joe Rosenbaum or Adam Snukal (or the Reed Smith lawyer with whom you normally work) if you have any questions or require legal counsel or assistance. Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information.

Transcending the Cloud - Financial Services: Show Me the Money!

This post was written by Joseph Rosenbaum, Adam Snukal and Leonard Bernstein.

Welcome to the New Year. As they do each year, clouds, together with some sunshine (and a cold winter blast periodically in our Northern Hemisphere), roll in, too.

Last year we published a number of topical updates to our Cloud Computing initiative – new chapters and white papers intended to provoke thought, stimulate ideas and, most of all, demonstrate the thought leadership Reed Smith attorneys bring to bear when innovative and important trends and initiatives in the commercial world give rise to new and interesting legal issues.

So here, from Adam Snukal, Len Bernstein, and Joe Rosenbaum, is a glimpse at some issues that apply to the world of financial services arising from Cloud Computing. This next chapter in Reed Smith’s on-going series, "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing," is titled "Look, Up in the Cloud, It’s a Bird, It’s a Plane, It’s a Bank." This white paper examines the issues that arise within financial services institutions in the wake of complex and evolving regulation and scrutiny, and we hope it provides some insight into the considerations and concerns that apply, even while the industry and the regulatory landscape are still evolving. A special note of thanks to Anthony S. Traymore, an Advertising Technology & Media associate and a good friend and colleague, who has now joined the legal department of a Reed Smith client. Anthony was instrumental in helping put the initial topical white paper draft together while at Reed Smith, and we like to give credit where credit is due – both here and in the white paper itself. Thanks Anthony.

As we do each time, we have updated the entire work so that, in addition to the single "financial services" white paper, you can access and download a PDF of the entire "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing" compendium, up to date and including all of the previous chapters in one document.

Of course, feel free to contact Adam Snukal, Len Bernstein or Joe Rosenbaum directly if you have any questions or require legal counsel or assistance related to financial services. Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. And if you ever have questions, you can always contact any Reed Smith attorney with whom you regularly work.

Looking Ahead to 2011: If Brevity Be the Soul of Wit

A line recited by Polonius in Shakespeare's Hamlet (1602) comes to mind today. It's the phrase "since brevity is the soul of wit . . . I will be brief." FYI, Polonius is a windbag in the play. There is also another phrase, often wrongfully attributed to Franz Kafka, that goes something like "lawyers are the only creatures that can write 1000 pages and call it a brief."

Well, here we are at the end of 2010. Those of you who have been reading faithfully know that each year, I create a Legal Bytes piece with no hypertext links to distract you; no citations; no dazzling factoids; and no breaking news stories. This time, I've decided to do something different. I am going to be brief. Instead of philosophy or predictions, I'm going to give you 10 words I believe may stimulate YOUR thinking about 2011. That's it. I trust you. Most of you are sharper than I anyway.

You don't have to buckle up or fasten your seat belts. Pull up a chair, open your BlackBerry, Kindle, Droid, iPhone, PC, Laptop, Netbook, Web-TV, PDA, Tablet or whatever your favorite Legal Bytes' reading device might be; grab an espresso, a glass of tea (or whatever your liquid of choice might be); sit back and enjoy. Here goes:

  1. Mobile
  2. Behavior
  3. Privacy
  4. Social
  5. Cloud
  6. Neutrality
  7. Monetize
  8. Consolidate
  9. Engagement
  10. Global

That's it. Oh, there is another word – profile – but that's the subject of my first Legal Bytes blog for 2011. You will just have to come back for it!

 

Happy Holidays and Best Wishes for 2011!

Season's Greetings - New Year 2011

To all the readers of Legal Bytes:

This is the time of year when many of you are celebrating holidays, spending time with family, friends and loved ones, bidding farewell to the end of 2010, and celebrating the coming New Year. It is a time when many of us take a moment to reflect on the year gone by and perhaps wonder what the New Year will bring. There are people we remember with fondness; perhaps a few we might be happy to forget. But as 2010 comes to an end, we should take a moment to reflect on the friendships and experiences that helped us grow, and resolve to do some things better next year—perhaps for those less fortunate.

Most of all, this time of year gives us an excuse to say thank you for the blessings we have and to express appreciation to people who have enriched our lives. If you are reading this, you likely have or will read something else posted in Legal Bytes. You are my audience and I have to follow you—you are part of the fabric of my professional life and each of your threads enriches me, helps me weave the patterns and textures in these electronic pages. I am grateful for your readership—that you take a moment out of your busy lives to read and comment, and maybe gain some insight while being a little entertained. Thanks.

I would be remiss if I didn't also thank a few people at Reed Smith like Erin Bailey and Lois Thomson, who make this blog happen, and Rebecca Blaw and Mike Scherpereel, who give their support and pitch in when needed. These are the folks you don't see, but I do—they help make Legal Bytes feel alive. They are awesome and there aren't words to express how grateful I am—especially when they get my email that says "please can we get this posted ASAP." Thank you so much. I couldn't do this without you! I would also like to thank Carolyn Boyle at the International Law Office (ILO) - she is the force behind motivating me to push content into the U.S. Media and Entertainment Newsletter, and while I can take credit for the substance, without her, the thousands of readers who enjoy the links and insights would be waiting far too long. Thank you. No, you aren't nagging me.

As the year comes to an end, let me express my appreciation and gratitude to each of you. Thank you for reading. You motivate me to keep this interesting and exciting. Let me know if I succeed; scream at me if I fail. In addition to my thanks, please accept my best wishes for a wonderful holiday season and a terrific new year, filled with health, happiness and success. Thank you.

Joseph I. ("Joe") Rosenbaum

Transcending the Cloud - Tying Up Cloud Antitrust Issues in a Bow

As you know, we have been updating our Cloud Computing initiative with a consistent stream of information – new chapters and white papers intended to provoke thought, stimulate ideas and, most of all, demonstrate the thought leadership Reed Smith attorneys bring to bear when new and important trends and initiatives in the commercial world give rise to new and interesting legal issues. Often, especially when words like "privacy" and "security" are thrown about, it becomes easy to overlook some of the other issues lurking in the background.

So here, from Jeremy D. Feinstein, is a glimpse at some antitrust issues. This next chapter in Reed Smith's on-going series, "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing," is titled "Tying Up the Cloud," and seeks to give you some insights into the potential antitrust and competitive issues that even customers should be aware of, if not concerned with, when considering entering the cloud.

As we continue to do, we have updated the entire work so that, along with the single chapter on "Tying Up the Cloud" applicable to antitrust, you can now access and download the PDF of our complete "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing" compendium, up to date and including all the previous chapters in one document.

Feel free to contact Jeremy D. Feinstein directly if you have any questions or require legal counsel or assistance related to competition or antitrust. Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. Of course, if you ever have questions, you can contact me, Joseph I. ("Joe") Rosenbaum, or Adam Snukal, or any Reed Smith attorney with whom you regularly work.

Viacom Appeals Google/YouTube Ruling

Just over a month ago, Legal Bytes reported [Federal Court Awards YouTube Summary Judgment in Viacom Copyright Infringement Case] that a federal court ruled in favor of YouTube and Google in the billion-dollar case brought by Viacom on a summary judgment motion. The court decided YouTube is protected against claims of copyright infringement by the safe harbor provisions of the Digital Millennium Copyright Act (the “DMCA”).

We also told you that we haven’t heard the last of this case, since immediately after the ruling was announced, Michael Fricklas, Viacom Executive Vice President, General Counsel & Secretary, noted, “This case has always been about whether intentional theft of copyrighted works is permitted under existing law and we always knew that the critical underlying issue would need to be addressed by courts at the appellate levels. Today's decision accelerates our opportunity to do so.”

Consistent with that announcement, Viacom has now filed its notice to appeal in the U.S. Court of Appeals for the Southern District of New York. Many legal scholars feel that in this case, the District Court opinion will be very persuasive; one never knows until the appellate court has rendered its decision. Stay tuned. If you did not read the original District Court decision, you can read and download it through the original posting on Legal Bytes: [Federal Court Awards YouTube Summary Judgment in Viacom Copyright Infringement Case].

Transcending the Cloud - Cloud Coverage (Insurance for a Rainy Day)

As part of our Cloud Computing initiative, we promised to tackle some issues that have seen little coverage elsewhere and can often be overlooked in the “technological” arena. Here is a look at the insurance coverage issues representing our next chapter in Reed Smith’s on-going series, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing.” This White Paper and Chapter takes a look at the insurance coverage implications of cloud computing, and is aptly titled “Cloud Coverage.”

We would like to thank Richard P. Lewis and Carolyn H. Rosenberg for their thoughtful and practical insights and effort. Feel free to contact them directly if any questions arise or if you need help or more information. As we continue to do, we updated the entire work so that in addition to the single chapter on “Cloud Coverage,” you can access the PDF of our “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing” compendium, receiving a complete update, including this one on insurance coverage.

Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. Of course, if you ever have questions, you can always contact me, Joseph I. (“Joe”) Rosenbaum, or Adam Snukal, or any Reed Smith attorney with whom you regularly work.

Transcending the Cloud - The German Perspective

As part of our Cloud Computing initiative entitled, we take a step over to Europe and proudly present our next chapter in Reed Smith’s on-going series “Cloud Computing - A German Perspective.” This white paper and chapter, takes a look at cloud computing from a German and, to some extent, potentially representative European perspective. It’s a refreshing look at both some legislative and regulatory implications, as well as a view from outside the United States.

We would like to thank Thomas Fischl and Katharina A. Weimer in our Reed Smith Munich office for their insight and effort. Feel free to contact them directly if any questions arise or if you need help or more information. As we continue to do, we updated the entire work so that when you access the .PDF of our “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing” compendium, you will receive all of the sections, now updated with this chapter from Germany.

Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. Of course, if you ever have questions, you can always contact me Joseph I. (“Joe”) Rosenbaum, Adam Snukal, or any Reed Smith attorney with whom you regularly work.

Every Cloud Has a Lining - Maybe a Legal One

Stimulated by the recently launched Reed Smith Cloud Computing initiative, Joseph I. ("Joe") Rosenbaum was interviewed by CFO U.S. reporter David McCann, and in the August 10, 2010, Today in Finance section, you can read the entire interview, "The Cloud's Legal Lining".

You can also read and download a current copy of all of the white papers in our ongoing series, "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing." Be sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with the latest and most updated version, as new white papers on additional topics are released. Of course, if you have questions, you can always contact Joseph I. ("Joe") Rosenbaum directly, or the Reed Smith attorney with whom you regularly work.

E-Discovery in the Cloud: Next Installment in Transcending the Cloud

As part of our Cloud Computing initiative, we are proud to present the next installment and chapter in our on-going series, "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing." This White Paper and Chapter, entitled E-Discovery in the Cloud, takes a close look at some of the challenges that lie ahead in the world of discovery, when information and applications are processed, stored, accessed and used in a cloud-computing environment.

We would like to thank Jennifer Yule DePriest and Claire Covington for their hard work in putting this together, and you should feel free to contact them directly if any questions arise or if you need help or more information. As we have in the past, we have also updated the entire work so that when you access the PDF of our "Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing" compendium, you will receive all of the sections, now updated with this "E-Discovery in the Cloud" chapter, and you will have our updated and growing body of legal and regulatory insight into Cloud Computing.

Make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with our latest information. Of course, if you ever have questions, you can always contact me Joseph I. ("Joe") Rosenbaum, Adam Snukal, or any Reed Smith attorney with whom you regularly work.

Cloud Computing: 'Transcending the Cloud' Adds Government Contracting Case Study

Last week, Legal Bytes announced Reed Smith’s new global initiative, Cloud Computing. With that announcement, the Task Force released the first three in a series of white papers entitled, “Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing.” We also promised to release “case studies” shortly after the white papers, to demonstrate how the insights in each paper have practical implications through case study examples.

Here is the first: A case study on government contracting, now attached to the white paper entitled, “The Risks and Rewards of a U.S. Federal Government Contractor Employing a Cloud Service Provider to Perform a Federal Government Contract,” authored by Lorraine Campos, Stephanie Giese and Joelle Laszlo. Contact them if you need to know more about this important area of cloud computing.

We will update each individual paper, as well as the compendium, as each paper, case study and update is released, so make sure you subscribe via email or get the Legal Bytes RSS Feed so you are always in touch with the latest information. Of course, if you ever have questions, you can always contact me Joseph I. (“Joe”) Rosenbaum, Adam Snukal, or any Reed Smith attorney with whom you regularly work.

Comcast v. FCC Fallout

This post was written by  Judith L. Harris and Amy Mushahwar.

The Federal Communications Commission ("FCC") has just voted to open a formal proceeding regarding how best to respond to the D.C. Circuit's decision in Comcast v. FCC (see our previous blog post, FCC Caught by (not in) the Web). In the Comcast case, the court reversed an FCC decision finding that Comcast had violated the Commission's non-discrimination principles by interfering with traffic from broadband subscribers using an online peer-to-peer file-sharing technology from BitTorrent. The appellate court ruled the Commission, under the FCC's previous (Republican) Chairman Kevin Martin, had improperly stretched its ancillary jurisdiction pursuant to Title I of the Communications Act to enforce one of its net neutrality principles against an Internet services provider. Earlier, the Commission had classified Internet access as an information service, only subject to light-touch Title I regulation, rather than as a telecommunications service, subject to more extensive Title II regulation, traditionally applied to common carriers.

At stake, in the minds of many, is nothing less than the future of the Internet: whether it is to be free and open and, assuming so, who is best positioned to determine what that means. In the eyes of some, especially the large Internet service providers such as Comcast, Verizon Wireless and AT&T, a free and open Internet equates to a complete government hands-off approach. Investment and innovation has flourished under the prior deregulatory steps, they argue. Others, especially edge players, including content and application providers such as Google, Amazon.com and Apple, focus on increasing Internet facilities consolidation and vertical integration in the industry. They see the need for a "cop on the beat" and explicit (e.g., net neutrality) rules to insure that those who control the "pipes" don't interfere with consumer choice and play favorites when it comes to content.

In the two months that have ensued since the Comcast decision, handed down only two weeks after the FCC's release of the Congressionally mandated National Broadband Plan, the debate has raged as to whether, and if so, how, the FCC should proceed to exercise oversight over the activities of Internet service providers. Not surprisingly, the question of increasing significance is where the FCC might turn for the power it needs to implement many of the recommendations contained in the National Broadband Plan. Everyone, it seems, has weighed in, from all branches of government (the White House, Congress and all the Commissioners at the FCC), to all of the private stakeholders, trade associations, coalitions that have come into existence to lobby the issue, media, academics, and Wall Street analysts (witnessing the recent volatility of ISP stocks).

Yesterday's action by the FCC finally gets the ball really rolling. While Congress has threatened legislation (in both directions) and a court challenge is inevitable no matter where the Commission ends up, the FCC's 3-2 decision opening this new proceeding is a necessary first step in breaking the current logjam.

The Notice of this new action is worded in neutral terms and presents three alternative solutions to the Commission's current dilemma. The Notice also seeks other ideas from the public. However, FCC Chairman Julius Genachowski has made no secret of the course he prefers. In the aftermath of the Comcast ruling, he outlined what he dubbed a "third way," (the third option, obviously not accidentally, in yesterday's Notice). His approach, he believes, represents a middle road between continuing to limp along regulating ISPs under Title I, despite the limited power that would afford the FCC to implement some aspects of the National Broadband Plan, and simply reclassifying broadband as a telecommunications service under Title II, with the potential that would introduce for heavy-handed regulation – such things as oversight of rates and the imposition of interconnection and unbundling obligations. This "third way" envisioned by Chairman Genowchowski, WOULD involve Title II reclassification, but would also include explicit forbearance from use of those powers most feared by telcos and cable companies.

One thing is clear: it's going to be a long, hot summer in Washington. The Chairman is determined to keep the proceeding moving (perhaps in part to encourage industry and public/private working groups that have already sprouted to come up with a negotiated solution). Comments from the public are due July 15, 2010, less than 30 days from now, with reply comments due August 12, 2010. An Order by the Commission is expected before year-end (and the start of a new Congress), with a decision possible as early as October. The effect of the outcome of the midterm elections and, before then, the tremendous amounts of money the upcoming election will infuse into the system from all of the stakeholders, create wildcards. The stakes are high; the decisions are likely to affect the shape of the Internet for a very long time.

Whether you want more information or need help filing comments with the FCC, look no further than our own Judith L. Harris and Amy Mushahwar in our D.C. office – authorities in the area. Of course, you can always call me, Joseph I. Rosenbaum, or any Reed Smith attorney with whom you regularly work.
 

FCC Caught by (not in) the Web

This post was written by Judith L. Harris.

Last week, the U.S. Court of Appeals for the D.C. Circuit handed down a unanimous decision in the case of Comcast v. the FCC, holding, in effect, that the Federal Communications Commission ("FCC") could not use its ancillary jurisdiction under Title I of the Communications Act to exercise broad oversight over the activities of Internet service providers ("ISPs"). The case involved a 2008 decision under prior FCC Chairman Kevin Martin, seeking to enforce 2005 "net neutrality" principles by banning Comcast's blocking or slowing of traffic from broadband subscribers using BitTorrent, an online peer-to-peer file-sharing technology. You can download and/or read the entire case here Comcast v. FCC.

 At first blush, the ruling appears to be a total victory for Comcast but,as no one knows better than Comcast itself, nothing in the Nation’s capital is ever that cut and dried. Thus, Comcast was wise to respond in a conciliatory fashion: "We are gratified by the court's decision today to vacate the previous FCC order. Comcast remains committed to the FCC's existing open internet principles, and we will continue to work constructively with this FCC as it determines how best to increase broadband adoption and preserve an open and vibrant internet." . 

Afterall, Comcast is awaiting the FCC's judgment on Comcast's $30 billion merger with NBC Universal. The Commission (along with the Department of Justice) has the power to sideline the deal altogether or to impose conditions that, depending on their severity, could place significant constraints on the business plan of the wanna-be merger partners. Stated another way: Comcast knows that its time for customer golf. Moreover, and possibly even more significant, the only options now available to a highly motivated FCC appear to be far more draconian to the ISP community than the relatively innocuous exercise of power that Comcast successfully challenged in court. The old adage "be careful what you wish for" comes to mind.

Not that any of this leaves the FCC smiling. From their perspective, the court's ruling could cast a long shadow over the FCC's ability to proceed with its pending rulemaking designed to codify even bolder net neutrality policies across all broadband platforms, including wireless. Moreover, the issue of the reach of the FCC's jurisdiction over Internet services could constrain the FCC's ability to deliver on President Obama's promise of universal broadband access at high speeds and reasonable prices, and the FCC's marquee project: implementation of the National Broadband Plan. That plan was released to Congress by the Agency just a few weeks ago (March 16), amid much fanfare and after a year's worth of intensive effort involving no less than 36 public workshops, nine field hearings, and 31 public notices that produced 75,000 pages of public comment!  

But, soldiers march forward. Only two days after the court's decision, the FCC announced its "Broadband Action Agenda," explaining the purpose and timing of more than 60 rulemakings and other proceedings recommended for action by the FCC in the plan, and quoting FCC Chairman Julius Genachowski defiantly proclaiming: "We are putting the National Broadband Plan into action," immediately adding, "The court decision earlier this week does not change our broadband policy goals, or the ultimate authority of the FCC to act to achieve those goals." Well, maybe not.

The ISPs will undoubtedly act with all deliberate speed to nail down the Comcast victory by vigorously lobbying Capitol Hill to oppose any effort by the FCC (and potentially other providers such as Google and Amazon.com, and tech companies such as Apple), to entreat Congress to mandate network neutrality or to enact legislation giving the FCC clear authority to regulate broadband. From the ISP perspective, even worse could be an effort by the FCC to unilaterally reclassify broadband transmission as a Title II telecommunications service, empowering the FCC (at least until the next court challenge) to regulate with impunity. This latter action, often referred to around town as the "nuclear option," would only require an affirmative vote by three of the five Commissioners, a low hurdle given the unrestrained, unambivalent public reactions of all three of the Democratic Commissioners (including the Chairman) in the immediate aftermath of the court's pronouncement.

This week (on April 14), Chairman Genachowski is scheduled to be the only witness at a hearing before the Senate Commerce Committee. That hearing was originally planned to focus exclusively on the National Broadband Plan. But now, in addition to examining the FCC's substantive proposals, the hearing will likely focus on its power, in light of the Comcast decision, to move forward with its implementation plans. With lobbyists swarming the halls of power, expect fireworks. Hopefully, all-out war won't be the only avenue considered. The public and private stakeholders would do well to take a deep breath and earnestly consider an immediate, good-faith attempt at serious industry self-regulation, with agreed-upon standards of conduct and meaningful enforcement mechanisms.

Time's a-wasting. As the FCC moves to implement the administration's broadband agenda, over at the Federal Trade Commission, net neutrality and open Internet advocates are undoubtedly pondering how best they can use their own powers to protect consumers from potentially abusive trade practices by vertically integrated ISPs with enormous market power in a world where the FCC might, in the end, have limited enforcement tools. Who knows, the FTC and the Antitrust Division might decide that its time to burnish tried and true antitrust laws as a way of curtailing any anti-competitive conduct. Comcast, to be sure, is ahead at half time but, as  they well know, there is still much more of the game to be played.

Whether you want to stay in touch and in tune with developments, you wonder how "net neutrality" and these skirmishes might affect your business; or if you need legal advice and representation, you need look no farther than our very own Judith L. Harris – she's the authority, and she graciously contributed this timely and insightful post. Of course, you can always call me, Joseph I. Rosenbaum, or any Reed Smith attorney with whom you regularly work.

Isn't Technology Supposed to Help Us? Help Us Work Smarter?

If you have been reading Legal Bytes regularly, you know that Lois Thomson here at Reed Smith has been one of the primary people supporting my efforts to transform "legal-ese" into understandable English – no trivial task for those of you who are interacting or have ever interacted with lawyers. So it is with great joy that I was not only able to have her write a post for Legal Bytes, but that I also finally got to edit her article. Hopefully she will smile and agree it's been helpful. So, Lois, thank you, and here is your relevant and very timely note for all the world to see:

"I looked at an email I received from my friend, Robert, and wondered why the subject line was a reply regarding an issue of Legal Bytes that I had proofread for Joe Rosenbaum. 'Are you aware that you have been sending these to me?' Robert's message read. 'It seems like that might have been a mistake.'

"Ouch! A mistake indeed! You see, when Joe sends his documents to me to review, I proof them and make my suggested changes. I then simply hit the forward button to return them to him. Now as many of you email-program (e.g., Outlook) users already know, to make life easier (that's ostensibly what technology is supposed to do), once I start to type in "ro," Rosenbaum, Joseph I.'s name should automatically populate the 'To' field. Oops. Not this time. Instead, my friend Robert's name came up, and without looking – as I'm guessing so many of us routinely do – I hit enter and sent it off, pleased I had been so timely and responsive. Unfortunately, I was responding to my friend Robert, who may happily read Legal Bytes, but not, I suspect, the artist's proof!

"Fortunately, Joe and Robert were gracious about the whole thing and in this case, both felt no harm was done. But what if the message had been from your lawyer or doctor or a rabbi or priest, or was some other communication that was not ultimately meant for public consumption. It was a simple but powerful reminder to me (and one that Joe felt was important enough to ask me to pass it on to you), that while automated tools can make routine tasks like 'field completion' simpler, they can also lead to problems if we rely on them without thinking. Hmmmm, now why can't I remember phone numbers anymore – is it because they are all programmed into every device I own, so that I no longer have to think?"

A helpful reminder that while automated tools are great, they are just that – tools. If we aren't careful, the tools can work against us and not for us, and can create embarrassment at best, liability at worst. Thank you Lois (and Robert).

Need to know more? Contact me, Joseph I. Rosenbaum, or any Reed Smith attorney with whom you regularly work. Need proofreading skills? If you don't work for Reed Smith, don't call Lois. She's busy helping us every day. Thanks again, Lois.

Are There Clouds in Your Future?

Check out MediaPost’s SearchBlog yesterday (A Dream Cloud Computes The Future), which recounts the conversation Joe Rosenbaum had with reporter and blogger Laurie Sullivan about the future of cloud computing. Need to know more about the legal implications and issues? Call Joseph I. (“Joe”) Rosenbaum or the Reed Smith attorney with whom you regularly work.

Outsourcing Providers Pitching Business? Be Careful What You Wish For.

As far back as May 2005, Legal Bytes reported that Europe was becoming a major outsourcing hub for a variety of reasons (Outsourcing Statistics). Well just this week, the law started catching up.

In what is certainly a major ruling and quite possibly the beginning of emboldened plaintiff-customers seeking greater accountability from outsourcing providers, Electronic Data Systems (EDS) has lost a case initiated by British Sky Broadcasting Plc (BSkyB) back in 2004, alleging that EDS, one of the leading outsourcing providers in the world, had misled BSkyB about its capabilities and expertise. For those of you who are legal research hounds, the case is cited as HT-06-311, British Sky Broadcasting v. Electronic Data Systems, although I don’t believe it has been fully published yet. The dispute arose over a services contract that was entered into by EDS and BSkyB in 2000, well before EDS was purchased in 2008 by its current owner, Hewlett-Packard (HP), for slightly more than US$13 billion.

To give you the background, BSkyB selected EDS to develop a new customer relationship management (CRM) system for its call centers in Scotland. After almost two years and failure by EDS to deliver, by March 2002, BSkyB ended the contract and took over the project itself – the frustration and events ultimately leading to the legal proceedings filed in 2004 that alleged EDS lied about its ability to undertake and complete the project. On the other side of the case, in its own court documents, EDS alleged that BSkyB simply “did not know what it wanted,” and wanted the lowest cost possible to accomplish “it.” To highlight the disconnect further, the contract with EDS was for £48 million, but according to court documents filed in the case, with all of the delays, budget over-runs, EDS’ failure to deliver, and BSkyB taking over and completing the project itself, costs had mounted to £265 million.

Justice Ramsey, writing for the British High Court, ruled that EDS misled BSkyB in making false and fraudulent misrepresentations in pitching and marketing its capabilities to BSkyB, giving rise to a claim for damages. Further, the court concluded, to the extent these representations were fraudulent, the limitation of liability clause in the contract that would have otherwise limited EDS’ liability for damages should be set aside and does not apply. While damages have not yet been fixed, in theory, if one includes the differential in costs, lost profits and other damages that are now fair game, EDS could be liable to BSkyB for well in excess of £200 million – that’s more than US$315 million at current exchange rates.

This is a major decision not only in the UK, but also for outsourcing deals around the globe, and if the beginning of a precedential trend, it could signal a radical shift in the way outsourcing deals are bid, negotiated and consummated. There is no question that anyone involved in outsourcing knows that the customer does not always have its specifications and detailed requirements buttoned up when discussions begin. Indeed, outsourcing often presents a singularity at which time enhancements, efficiencies and improvements that might have been difficult or impossible internally, can be effected by moving the operations to a third-party provider. The provider, eager to win a lucrative bid, may over-promise or over-represent its experience and capabilities. Smart negotiators know that forcing both sides to diligently and meticulously work through the "devil in the detail," and making sure expectations, resources and capabilities are clearly set out and unambiguous, is the single most important contribution to be made in avoiding disputes, potential litigation and problems as the work and services unfold. Those of you in marketing know all too well that there is often a fine line between an actual claim and puffery. The former represents actionable representations, the latter . . . well, “you’ve tried the rest, now try the best” on every pizza box in the world.

Are you contemplating a major outsourcing initiative? Are you considering any outsourcing project, even a small one, involving critical operations – customer services, supply chain management, operations, transaction processing? Outsourcing is complicated. Need help? We wrote the book. No really, you can see for yourself: Outsourcing Agreements Line by Line: A Detailed Look at Outsourcing Agreements & How to Change Them to Fit Your Needs, written by none other than yours truly, Joseph I. Rosenbaum. Whether you check out the book or not, if you do need help, our Advertising Technology & Media law team here at Reed Smith has the help you need to make sure that, even if you are right, you can avoid the costly consequences and angst inherent in any legal proceedings between customers and providers. How can we help you? Call me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work.

When the Fog Lifts, Don't Be Surprised if You Still See Clouds

“If computers of the kind I have advocated become the computers of the future, then computing may someday be organized as a public utility just as the telephone system is a public utility . . . The computer utility could become the basis of a new and important industry.”

                                      John McCarthy, MIT Centennial, 1961

“Cloud computing” is a term used to describe the use of computer resources not solely as a communications protocol (e.g., the Internet), nor solely as a content or transaction host (World Wide Web), but as an application development and information processing service. To help explain further, to send an email, much like using the telephone, it makes no difference who your provider or host is or which carrier you use. There is a protocol that allows interoperability across networks and processors, and as long as the sender and recipient have an email address and access to an Internet connection, the email gets through. On the web, with access to the Internet and a browser (technology that displays content and functionality hosted at a particular Internet address), you can interact with the website – you can see the material displayed and you can "select" (click) to enable certain features.

Today, as a general rule, if you wanted to create, edit, spell check, save, send or share most content or information with someone, unless you plan on typing and formatting a very long email, you still need word processing, spreadsheet or presentation software programs to create and upload (communicate or store for display), or to see and use content that you might download. In a cloud-computing environment, all of these functions are resident in the "cloud." Imagine that you no longer needed a desktop or laptop computer processor, and all you had were input and display devices (e.g., keyboard, mouse, monitor), which you could either carry or borrow wherever you went. Plug into a universal "outlet," enter your unique pass codes and authentication information, and you have everything you need – where and when you need it. Like telephone, electric or gas service, computing becomes a commodity accessible virtually anywhere and anytime, generally priced by usage, the applications, and the amount and type of storage for which you want and need access.

Cloud-computer services can be sold and paid for using plans not dissimilar to phone service – per call, per minute, unlimited, features, functions – and they disaggregate the user, whether individual or business enterprise, from the procurement, maintenance and operations of the underlying processors and software programs. Clouds can be public – made available to anyone on demand (think Wi-Fi registration based hot spots) or private (large companies can operate or arrange to have someone operate a closed-cloud environment). I summarize the basic characteristics of cloud computing as follows:

  • Flexibility – the user can easily modify use, resources, demand, access and virtually every other resource, without the need to purchase or dispose of any equipment or software, other than input and output devices. Increases or decreases in processing, development, storage or other requirements can be managed easily in real time and on an infinitely scalable basis.
  • Cost – commodity or utility pricing lowers user costs. Capital expenditures can be eliminated, license fees reduced and access fees managed more efficiently.
  • Resources - shared resources enable lower per-user, per-unit pricing, and optimization of peak and non-peak loads across user communities. Resource upgrades and enhancements can be amortized across a broad user base, seamlessly and transparently to the user community. Inter-exchange agreements between cloud providers will enable continuity and recovery, load management, and resource backup capability at optimal prices.
  • Independence – time, space and resource constraints become largely irrelevant to the extent Internet or web access is available.
  • Interoperability – absent unique or customized requirements that can be managed separately by the user, standardized applications, development tools and protocols are simpler to maintain and operate, debug, update and support. 

While security and privacy is always a concern – more so where data, in addition to processing capability and storage, becomes more concentrated and accessible rather than distributed – more users and businesses will have the potential benefit of stronger security measures than are currently affordable or in use, to the extent cloud providers can develop and implement strong security standards and protocols within their service offerings. 

So who are the actual or prospective players? Well lots of prognosticators and labelers are out there, but here is my list in basic categories:

  • Providers are those who procure, create, host and manage cloud resources and then sell access, services, features and functions in a cloud environment – wholesale or retail
  • Users are those who need to use and take advantage of cloud services, features and functions, whether individually or as part of a business
  • Intermediators are those who create intermediation and aggregation opportunities between and among providers. On the one hand, intermediators can bridge gaps between providers and create interface and sharing environments between or among providers. On the other hand, intermediators may begin finding niches in customizing or aggregating services, features or functions for particular industries or in particular regions.
  • Developers and supporters are those who develop utilities, applications, tools, features and functions to enhance the cloud experience, make additional services and applications available, and who maintain and support the efficient functioning of the cloud environment.

There may be others – my list is not intended to be comprehensive or even definitive. I don’t have a crystal ball, so time and experience will determine what we cannot now predict. Four computers, interconnected to respond to the perceived vulnerability of centralized computing, were the origins of the Internet. Distributed computing represented commercial attempts to amortize costs, decentralize institutionalized information, and enable greater redundancy and recovery capability. Networking and web-based computing gave us the ability to communicate, share and store information across multiple processors and devices through share protocols. While it’s still too foggy to tell what the future will bring, cloud computing represents the next big innovative thing in making the power of the computer and the Internet easier to use, more available, more interoperable and more cost-effective.

When the fog starts to lift, we may see clouds on the horizon. Whether they are storm clouds or fluffy wondrous sights of joy, I leave to your imagination. Stay tuned. But no matter what your visions of the future may be, if you see a cloud and you aren’t sure what the legal implications might be, please feel free to contact me, Joseph I. (“Joe”) Rosenbaum, or the Reed Smith attorney with whom you regularly work.

HITECH Means High Stakes in First-Ever State HIPAA Lawsuit

Yesterday, the Attorney General of the State of Connecticut filed suit against the Connecticut subsidiary of Health Net, charging it with violations of the privacy and security requirements of HIPAA. The action, filed yesterday in the United States District Court in Connecticut, comes on the heels of a security breach involving medical records and Social Security numbers. The suit also names United Health Group Inc. and Oxford Health Plans LLC, who acquired Health Net of Connecticut but who were not involved in the data breach.

If you forgot, last year the Health Information Technology for Economic and Clinical Health Act (HITECH), for the first time authorized individual state attorneys’ general to enforce the security and data privacy regulations under HIPAA, and this appears to be the first such action.

The lawsuit claims that Health Net in Connecticut failed to provide adequate security for the medical and financial records of hundreds of thousands of enrolled individuals, and failed to notify them promptly in connection with the breach. The breach, which took place last May, involved the disappearance of a computer hard drive. Health Net eventually reported the breach, posting a notice on its website and starting a staggered process of mailing letters to consumers November 30, 2009, almost six months after the security breach. For those of you involved in the collection, handling, maintenance, or use of personal, financial and medical information covered by HIPAA, new federal rules under the HITECH Act require "timely" notification of certain breaches, rules that have a compliance deadline of February 22, 2010.

Health Net attributed the delay in reporting to its inability to determine exactly what was on the computer hard drive that disappeared, thus not being sure if a notice was even required. One can only surmise that the mere fact that Health Net didn’t know what information was contained on a removable computer hard drive made its reasoning less than satisfactory to the Connecticut State Attorney General. Although Health Net appears to have conceded that the data was not encrypted, it did indicate that the data should not be visible without the use of specific software. However, Kroll Inc., a computer forensic firm retained by Health Net to investigate the breach, reported the data could be viewable with commonly available software.

Privacy, security and data protection of non-public, personally identifiable and sensitive information (e.g., health, financial data) are increasingly subject to stricter rules and regulations. The use of the Internet and web, making digital information more susceptible to undetected duplication, transmission and access – not to mention the obvious fact that carrying millions of pages of records would be impossible, while walking out with a single hard disk or CD-ROM on which the same data and information has been scanned or stored in digital form – can be virtually undetectable.  

Do you know of any law firm that has a team of privacy and data security, identity theft and data breach legal professionals? A firm that has health care, financial services and insurance specialists, as well as lawyers steeped in digital technology, information security and e-commerce? A firm that has transactional, regulatory compliance and policy-oriented lawyers who can audit current practices and policies, assist in developing mechanisms needed to satisfy regulatory requirements, and provide legal support to help avoid a legal problem, and also regulatory, compliance and litigation professionals who can represent and defend clients if a problem arises? Now you do – Reed Smith. If you need more information, contact me, Joseph I. (“Joe”) Rosenbaum, or Mark Melodia or Paul Bond, or the Reed Smith attorney with whom you regularly work, if you need legal advice, information or support on this subject.

UK Sports Minister Proposes Changes to Gambling Legislation

This post was written by Laura Hicks and Joseph I. Rosenbaum.

Last week, Gerry Sutcliffe, Minister for Sport in the United Kingdom, announced proposals to make significant changes to the existing legislative framework under which remote gambling is regulated. Following a review of the system of online gambling regulation in Great Britain by the Department for Culture, Media and Sport, a consultation is being launched with a view to introducing laws requiring all online operators to apply for a license from the Gambling Commission in order to either advertise or provide gambling services to British consumers. According to the Minister for Sport, the proposed changes were "necessary to ensure the protections in the Gambling Act – to keep gambling crime free, to ensure gambling is fair and open, and to ensure that children and vulnerable people are protected from harm – continue to be afforded to British consumers."

Under the proposals, a license will be required even if the gambling services are offered to British consumers using remote gambling equipment from outside Great Britain. Currently, only operators based and licensed in the UK are allowed to advertise in the UK, unless the country in which they are based is either a member state of the EEA or on the government's "whitelist." More information on the "whitelist" is available on the Department for Culture, Media and Sport website, but to give you some insight, territories currently on the list are Antigua and Barbuda, Tasmania, the States of Alderney and the Isle of Man. "Whitelisting" is the process used by the UK Ministry to assess the regulatory framework for gambling in any jurisdictions outside the EEA that apply for permission to advertise their services within the UK. 

As well as being obliged to share information about suspicious betting patterns with the UK's sports governing bodies and the Gambling Commission, foreign operators would also have to comply with British license requirements concerning the protection of children and vulnerable people, and contribute to the research, education and treatment of problem gambling in the UK.

This appears to be a move by the UK government to close a loophole in the laws that protect online gamblers in the UK, and that more closely mirror the more protectionist regime in the United States. If this extension of the licensing regime is introduced into legislation, it will be interesting to see how the regulator intends to enforce the license scheme against gambling companies with no UK presence. In the United States, enforcement has involved a variety of "indirect" mechanisms, from the Department of Justice's use of the Interstate Wire Act of 1951, which applies to sports betting to assert jurisdiction over online gaming – even though the Fifth Circuit ruled in 2002 that the Wire Act only applies to sports betting – to seizing advertising payments made to broadcast networks by advertisers seeking to promote online gambling considered illegal by the United States. Since 2006, with the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), the United States has sought to seize assets in financial institutions tied to online gambling, based on what it considers illegal activity, money laundering and a variety of other offenses (see, for example, a recent Huffington Post article). It is noteworthy that UIGEA does not make online gambling illegal per se, but rather prohibits any transfer of funds from a financial institution (as defined in the legislation) to an illegal Internet gambling site.

Once you read the UK Sports Ministry's announcement, if you need more information, contact Laura Hicks, an associate in the Media and Technology team, in our London office. Of course, you can always contact me, Joseph I. ("Joe") Rosenbaum in New York, or Gregor Pryor in London, or the Reed Smith attorney with whom you regularly work, if you need legal advice, information or support on this subject.

That's Cloud Computing, Not Smog, Spreading From L.A.

Although reports of dissipating smog may be premature, if postings from Google are to be believed, Los Angeles is officially in the cloud. Google’s online email and collaboration cloud, that is! City employees will now use cloud computing for email and working on collaborative projects together. Google hails cloud computing for the city of Los Angeles as something that “will improve the security and reliability of city email, transitioning from servers in the City Hall basement to hosted, secure data centers.”

Los Angeles isn’t the only place to fall in love with clouds. VISI, the largest provider of data-center and managed-hosting services last month (December 2009), announced a public beta of ReliaCloud – a cloud computing service available to users anywhere. Set up an account online, set up computer servers in one of the VISI data centers, and employee-users can access the service from anywhere – anywhere there’s an Internet browser and connection. Cost? Reportedly, the pricing starts at 5 cents an hour! Welcome to fungible, commodity computing. According to VISI, its cloud service was designed to be reliable, affordable and scalable. The beta is targeted at small- to medium-sized commercial users, and businesses can apply at www.reliacloud.com. And VISI anticipates storage and other services to become available over time as part of a suite of offerings. Just one example among many of companies offering and embracing cloud computing.

The United States isn’t the only country where cloud computing environments are springing up. Back in September, the city of Dongying in China announced a strategic initiative with IBM, where the city is hoping to transform its industrial, petroleum-based environment into a service-driven economy. The cloud will be designed to allow start-up companies to do testing and software development through the web, but will also include electronic government services (e.g., e-services). IBM has also set up cloud computing in the Chinese city of Wuxi, and was recently picked to build another cloud computing platform - Quang Trung Software City – in Ho Chi Minh City (Saigon, the former capital of South Vietnam). For you trivia buffs, Quang Trung was an Emperor of Vietnam centuries ago. IBM is another emerging player, along with Microsoft’s Azure, Amazon.com’s EC2, and Google’s AppEngine, to name only a few of the more prominent participants in the growing move to cloud computing environments.

So, if your head is in the clouds or if all of this seems foggy to you, you should consider learning more – especially about the legal implications and issues. And you probably should start doing so BEFORE your IT, Finance, HR, Security, Audit, or Operations people (or maybe even the government regulators), come knocking on the door! Want or need help? Contact me, Joseph I. (“Joe”) Rosenbaum, or the Reed Smith attorney with whom you regularly work. We’ll help get you out of the mist and back on Cloud Nine!

Happy New Year Wishes for 2010

Wishing you health, happiness, prosperity and peace in 2010

In a tradition that started almost 4,000 years ago by the ancient Babylonians – although they celebrated the new year upon seeing the first new moon after the vernal equinox – please enjoy a very happy, safe and joyous new year celebration.  Those of you who look forward to Useless But Compelling Facts can read more about the history of new year celebrations, or how the new year’s festivities, now televised around the world, began in New York’s Times Square.

New Year's Greetings
 
This is the first year we have published in a blog format, and with your feedback – mostly positive and always constructive – and more than 17,000 visitors in slightly less than 11 months, I am grateful and appreciative for your support.  Thank you for reading Legal Bytes.

Joe Rosenbaum

Looking Ahead to 2010: To Boldly Go . . . .

Each year, at the end of the year, I create a Legal Bytes piece intended to be more thoughtful and philosophical than the articles posted during the year. Thank you, in advance, for reading and allowing me to attempt to provide some insight and thoughtfulness to your day, in what I hope is an enlightening and entertaining manner. While my normal postings are designed to bring you news, updates and thoughts about timely events, this is one is longer – and arguably less exciting – and asks you to indulge me in a bit of philosophy, or what passes for an attempt at philosophy about the year past and the year ahead.

This article will contain no hypertext links to distract you; it will not have citations to offer more information about a snippet; nor will it dazzle you with factoids or intrigue you with today's news. It's just me philosophizing, my one chance during the year to ramble about where we've been and where I think we might be headed – without any credentials, qualifications or expertise to do so. 

So loyal Legal Bytes' readers, you don't have to buckle up or fasten any seat belts. Just pull up an easy chair, open your Blackberry, your Kindle, your Droid, your iPhone, PC, Laptop, Netbook, Web-TV, PDA, or whatever your favorite Legal Bytes' reading device might be; pour a glass of tea (or whatever your liquid of choice might be), sit back and enjoy . . . and again, thank you. So here goes.

*****

I'm a Star Trek fan. I've watched all of the television episodes, starting from the day Captain Pike, bound to a wheelchair resulting from his own heroism, is taken to the very first virtual world I can recall being displayed in mass media. I've watched all of the Star Trek movies. I confess to being a victim of an "even number" preference, culminating so far in this last Star Trek – certainly among, if not the favorite of all of them. 

Computers that can search for anything and everything. Touch screens and voice commands. Warp speed and instant communication across multiple languages and without regard to geography or time zones. All that with a bit of humor, a bit of clever philosophy and a social network (crew) that have hugely diverse (one might say inter-planetary) ethnic, cultural and racial characteristics, and at the same time work seamlessly together as a team. More than science fiction, Star Trek is really science within fiction, and a fiction that might just be reality if we close our eyes long enough and hard enough. Most of all, to boldly go where most of us have never gone before isn't really referring to space as the "final frontier," is it?

Now I know not everyone is a Trekkie, and I confess that while I am a big fan, I'm not really obsessed. I don't go to conventions or wear uniforms, nor do I run around screaming "Beam me up," although I do confess to a feeble attempt at a Scottish accent when I respond "I can't do it, Captain." So what is it that makes me able to watch over and over again and relish each scene and each episode, and look forward to each new motion picture? It's not simply because I like science fiction. Nor is it solely because of an ensemble cast, made up of some extraordinarily fine individual actors who work extraordinarily well with each other and with scripts that combine serious science fiction with some tongue-in-cheek individualism, not always in human form.

Let me digress to a personal, but relevant anecdote. Many years ago I had the pleasure of actually meeting Leonard Nimoy. I won't go into detail, but on behalf of a client, I had contacted Phil Gersh, the gentleman (a true gentleman) who represented Mr. Nimoy at the time, and Mr. Gersh must have relayed our conversation to Mr. Nimoy, resulting in a meeting in New York. It was over lunch, very relaxed and informal, but I admit to feeling an amazing sense of excitement, good fortune and privilege at being able to actually sit down and talk with someone I had long admired as an actor, writer, director and producer.

Continue Reading...

Wandering Lonely as a Cloud? Not One Cloud Computing Inventor in Texas!

In 1804, William Wordsworth published what is certainly among the most well known and oft-read poems in the English language – it begins, “I wandered lonely as a cloud that floats on high o'er vales and hills, when all at once I saw a crowd, a host, of golden daffodils.”  Now even back in 1804, Wordsworth, no XML programming guru, was already talking about clouds, crowds and hosts . . . 

So we read recently that NetMass, a Texas company, reached a settlement and had a judgment issued in a federal patent case involving a lawsuit by an inventor, Mitchell Prust, alleging that NetMass infringed some cloud computing and cloud storage patents. Mr. Prust had apparently invented a mechanism to allow web browsers to access application programming – a fundamental aspect of cloud computing. The settlement and judgment entered by the Federal Court in Texas (Mitchell Prust v. Softlayer Technologies, Inc., et al., No. 2:09-cv-236) notes that NetMass had infringed three of Mr. Prust’s patents and enjoins NetMass from continuing to do so in the future. From current published reports, Mr. Prust also has a lawsuit pending in Federal Court in California against Apple.

This may be just the beginning of a wave of intellectual property lawsuits as cloud computing begins to evolve and become part of a commercial operational toolkit around the globe – not much different from those surrounding ATMs, online banking, networking and other once-emergent technology platforms. Stay tuned. You will be hearing more from us about clouds in the year ahead.

In the meantime, if your head is in the clouds (or perhaps just a fog), and you need help, feel free to contact me, Joseph I. (“Joe”) Rosenbaum or the Reed Smith attorney with whom you regularly work.

University Licensing Gets a Jolt - Exclusivity Is Not Patently Obvious

This post was written by Craig P. Opperman.

The United States Court of Appeals for the Federal Circuit has just overturned a lower court’s decision to throw out a patent infringement action brought by AsymmetRx against Biocare Medical. Why, you ask? The Appeals Court concluded in AssymetRx, Inc. v. Biocare Medical LLC that the patent owner, Harvard, should have been included in the lawsuit. Why should you care? Bear with me, especially if you are involved in any way in licensing, exploiting or otherwise commercializing technology, inventions or other intellectual property related to colleges and universities – or in litigating related licensing disputes.

Harvard gave AsymmetRx an exclusive license (including the right to enforce its rights) under a fairly standard and typical “university” licensing agreement. AsymmetRx sued Biocare and won. So far, all is right and ‘normal’ with the world. BUT, not so fast. Biocare appealed the decision and – are you ready?- The Appeals Court for the Federal Circuit sent the case right back to the District Court saying, exclusive? Not really. Harvard should have been joined in the infringement action. What, you say? How can this be? Read on.

The appellate court ruled that reading all the terms and conditions of the standard university license altogether, AsymmetRX didn’t really have the equivalent of full ownership of the patent or the subject matter – exclusive license notwithstanding. So Harvard, the owner, must be a party to the action for any determination on the merits. Specifically, the Court stated: “When viewing the retention of the right to sue in conjunction with all of the other rights retained by Harvard, it is clear that Harvard conveyed less than all substantial rights under the patents. While any of these restrictions alone might not have been destructive of the transfer of all substantial rights, their totality is sufficient to do so.”

In other words, since Harvard, under the terms of its license, still kept a significant amount of control over the patent rights, AsymmetRx as a licensee did not have enough of an interest in the patents to sue without joining Harvard – even though the license terms purported to give AsymmetRx the right to do so. Hmmmm.

Who cares? First of all, universities may now end up having to be joined in every intellectual property infringement action or disputes over intellectual property rights – even though it/they may have given an exclusive license, including the right to bring an action in its own name, to someone else. Are the litigators seeing dollar signs, and are university officials seeing legal costs and additional expenses, in the licensing process?

Just as significantly, if you are a transactional or intellectual property lawyer (or if you are involved in the licensing process from a transactional, contractual or licensing point of view), it gets more complicated. Universities have crafted standard licensing terms which, with rare exceptions, are used in virtually all of their licensing arrangements. So do you change the terms and conditions of these license agreements, relinquishing a greater degree of control – in which case the contract might look more like an ‘assignment’ than a ‘license’ – OR do colleges and universities start gearing up for being involved in more and more intellectual property infringement and rights disputes and lawsuits? If so, does the license agreement specifically need to state that the university is willing or amenable to being joined in the action? What if it’s not? What if it wants to decide on a case-by-case basis? What if the Court decides the university must be joined anyway? What if . . .?

So, are you a licensee? An investor? A university? A rights holder? Doing due diligence? Negotiating licensing agreements? Representing any of these folks? You can do nothing and hope for the best, or you can contact Reed Smith’s Craig P. Opperman. In uncertain times, no one may have all the answers, but at least you will have an informed basis to make some decisions from lawyers who know.

Will Net Neutrality Compromise Net Profits?

Earlier today, Julius Genachowski, Chairman of the Federal Communications Commission (FCC), telegraphed the Commission’s plans to open a formal rule-making process on the issue of “net neutrality.” It’s likely the specifics regarding hearings and a timetable for any proposed rulemaking procedures will be on the agenda for the FCC's October meeting.

While many of the major carriers – including wireless carriers who have typically been out of the fray when it comes to the Web – have argued against both the need and the wisdom of competitive regulation amongst carriers, open Internet advocates, many of whom were ardent campaign contributors and supporters of President Obama, have been aggressively pushing for regulation. Companies such as Amazon.com and Google, have long argued for rules that would prohibit carriers from denying their right to give consumers complete freedom of choice when it comes to both the content they receive and the devices they use to receive it. While not necessarily quibbling with what appears, on its face, to be a reasonable and market driven approach, opponents point out that the government stay away from intervening in yet another major marketplace – this time one, they argue, that isn’t broken. Further, and perhaps more significantly, companies such as ATT and Verizon, now joined by ATT Wireless, Verizon Wireless, Sprint (Sprint Nextel) and T-Mobile (Deutsche Telekom) argue that forcing carriers to open up their networks without corresponding economic counterbalances in place will force them to either raise consumer prices to keep up with virtually unrestricted broadband demand, but may require them to limit availability and accessibility for capacity and technological reasons. Wireless carriers may have special reasons to be concerned given current pricing models and the technological limits of current bandwidth capacity. That said, the major cable television, fiber optic and DSL-based Internet providers have long had to cope with government regulation and requirements.

Back in the days following the breakup of AT&T’s telephone monopoly (anyone remember Judge Green and his landmark 1983 rulings?), the regional and local companies spawned by carving up the nations’ previously regulated monopoly – the so-called ‘Baby Bells’ - worried about long-distance carriers (including the remaining long distance carrier, AT&T) making deals for preferential treatment over interconnections. Thus the principle of equal (“neutral”) treatment for interconnectivity arose. When cable companies started offering Internet service – previously the domain of phone-line intensive telephone companies (remember dial-up?) – they tried to convince everyone that neutrality didn’t apply to them. They carried information, and weren’t, after all, common carriers.

OK. Fast forward to the market response. Phone companies decided to get into the content business! Cable companies are offering Internet and VOIP services, telephone companies are offering entertainment, programming and information services, wireless phone services stream video content and provide messaging of news, sports scores and applications galore (oh, they do still carry voice traffic when you need to make a call).

So back to 2009 and the future. According to Commissioner Genachowski: "This is not about government regulation of the Internet," adding that "We will do as much as we need to do, and no more, to ensure that the Internet remains an unfettered platform for competition, creativity, and entrepreneurial activity." That said, his proposal would add a fifth principle to the FCC’s existing four that relate to the Internet. To wit, that carriers will not be permitted to be selective about the content they carry (subject, of course, to their continued ability to block illegal content) and will be required to be transparent about how they are managing the carriage of content across their networks. Violations and allegations of discriminatory practices would still be reviewed by the FCC as and when the facts of each specific case arise. You can read or download the complete statement of Commissioner Genachowski’s prepared statement today, entitled “Preserving a Free and Open Internet: A Platform for Innovation, Opportunity, and Prosperity,” right here.

Clearly if you are a small Internet application provider or software developer that has traditionally had to pay for access through a carrier, open, non-discriminatory access would prove a major boon. Then again, Internet carriers – wired and wireless - have invested huge amounts of capital in building their own proprietary networks. Since there is no evidence that there is a lack of competition, why should the government tell any of them what they should or should not carry on their networks? Indeed, since the early 1990s, when the Web evolved from a glimmer in the eye of Tim Berners-Lee, to a reality, there have been so few real complaints (and so few complaints from consumers, even as competitors bash each other about), why fix something that doesn’t appear to be or have been broken for almost two decades?

Confused as to how the FCC proceedings might or might not affect your business? Thinking about participating in the dialog or submitting comments to the FCC? Let Reed Smith help you. To stay informed, keep your mouse tuned to Legal Bytes, and if you need to know more, please feel free to call me or the Reed Smith attorney with whom you regularly work.

A Pirate's Life (Not) For Me: France Strikes Out Internet Piracy

This post was written by Andrew Boortz and Joseph Rosenbaum.

Over the last several months, France’s Parliament has been focusing on the issue of Internet piracy. In May, both houses of the French parliament passed the so-called “three strikes” law which would have given an independent body the ability to disconnect file-sharers from their ISPs. In June, the law was declared unconstitutional by the Constitutional Council because, under French law, the power to force such disconnection could only come through issuance of a court order. In response, French President Nicolas Sarkozy gave the first Presidential speech to the French Parliament in 150 years and passionately defended regulation of Internet piracy. 

After President Sarkozy's speech, the French Senate drafted and passed a modified version of the “three strikes” law which would allow alleged infringers to present their case to a French court, prior to losing their Internet connection. Judges in these hearings would have the power to: (1) order disconnection of the alleged infringer's Internet access; (2) fine the alleged infringer up to €300,000; and/or (3) sentence the alleged infringer to a two-year prison term. Just yesterday (September 15th), the French National Assembly gave preliminary approval to the measure by a vote of 285-225 and now, a joint committee will unify the Senate and Assembly versions and present a final bill to both houses for a vote on September 22nd.

In looking back over the piracy-related events of this year, it may well turn out that 2009 will be remembered as a watershed year in the struggle between Internet pirates and rights holders.  With the Jammie Thomas and Joel Tenenbaum verdicts in the States, the pseudo-shuttering of the Pirate Bay in Sweden, the implementation of a self-imposed, self-regulatory “three strikes” policy by Ireland’s largest ISP (created under threat of massive litigation) and now France’s revised and revitalized new “three strikes” law, the global community is indeed tilting towards greater sanctions and regulation of Internet piracy.

This raises questions for technology innovators. For example, Facebook, which according to a CNN report out today has a social network population nearly as large as the population of the United States, will soon launch a voice chat feature.  Most likely, the feature could be used to stream media across the globe as well as the nation? Would Facebook be liable for creation and distribution of such a feature, which is similar to that which created liability for the Pirate Bay creators for their torrent-tracking website?

Need help? Confused by the torrent of information, technology and legal rights?  Need to know more? Contact Andrew (“Drew”) Boortz, in our Washington, D.C. office, call me or contact the Reed Smith attorney with whom you regularly work.

Privacy: FTC Announces the First in a Series of Public Roundtables

Earlier today the Federal Trade Commission announced details of the first of a series of Public Roundtables being held to deal with continuing efforts to examine, evaluate and determine if, and to what extent, regulation may be needed in connection with consumer privacy. In its announcement, the FTC specifically cites its intention to review privacy practices related to social networking, cloud computing, online behavioral advertising, mobile marketing, and the collection and use of information by retailers, data brokers and third-party applications.

The FTC’s announcement acknowledges the beneficial uses of information and technological innovation, while seeking to balance those against the need to protect consumer privacy. The first full-day session will be held Monday, December 7, 2009, at the FTC Conference Center at 601 New Jersey Avenue, N.W., Washington, D.C., and no registration is required. Those who cannot attend in person are welcome to go to FTC.gov and will be able to view the proceedings as a webcast.

The FTC has invited individuals and organizations to participate and/or to suggest topics. To participate, your request can be submitted directly to the FTC by email sent to privacyroundtable@ftc.gov on or before October 30th, and comments surrounding the issues to be discussed can be submitted on or before November 6th. The FTC has prepared a list of specific questions it intends to use in opening the dialog at this first in its series of public roundtable discussions and has invited written comments, as well as research submissions. Details can be found at the Privacy Roundtable Workshop page of the FTC’s website. Comments can be mailed to the FTC, or you can check the FTC website for instructions as to submitting comments electronically. Of course, Reed Smith stands ready to assist clients in preparing comments or providing representation, and if we can be of assistance, don’t hesitate to contact us. If you need to know more, please feel free to call me or the Reed Smith attorney with whom you regularly work.

Identity Theft: Don't Just Yell 'Stop Thief.' Audit Something!

It was 1998 and identity theft had not yet hit the radar screens as heavily as it would during the course of the next decade. Who could predict? So when I received a call from Albert J. Marcella, Jr. Professor of Management in the School of Business and Technology, Department of Management, at Webster University in St. Louis, who said he was putting together an "audit oriented" publication for The Institute of Internal Auditors to guide professionals who were becoming increasingly concerned about online identity theft, I naturally wondered what I could contribute to that effort.

So we spent a great deal of time collaborating about what we knew, speculated about what we did not know, and tried to put the work in context—specifically, guidance for corporate auditors and security management professionals on what they needed to know as sensitive, personally identifiable information migrated online. The result, of which my contribution played only a small part, was a book entitled www.STOPTHIEF.net, Protecting Your Identity on the Web, published in November 1999 by The Institute of Internal Auditors.

Identity theft, not a brand new crime even then, had a new face in our online, digital interconnected world. And, it was growing and pervasive, and its implications—if for no other reason than the sheer magnitude of the potential risks and the speed at which they would materialize on or through the Internet—were unprecedented and were becoming global.

I now know what I could not have known then—that more than 40 states have passed identity theft statutes and that the Privacy Rights Clearinghouse website, which takes pride in cataloging such things, estimates that as of a day or two ago, 263,247,398 records containing sensitive personal information were involved in security breaches in the United States since January 2005—six years after the publication became available.

To appreciate the foresight and to learn about those audit guidelines and benchmarks, you have to buy the book. But to read my personal piece of that collaborative effort—an end-piece summary of the legal implications entitled "Technology, the Internet and Cyberspace: Challenges to National and International Privacy", you just have to read Legal Bytes.

It's Often the Little Things that Count - Here are Two

Last month, we brought you information about outsourcing—a topic making news daily. This month, we bring you smaller news with potentially bigger implications.

In the biblical prophecy of Isaiah, the wolf lives with the lamb, the leopard lies down with the kid and a little child shall lead them. You can draw your own conclusions as to who are lions, lambs and the little child, but a few days ago, the unthinkable occurred. Sun Microsystems and Microsoft reached peace by dropping most claims, cross-claims and the vitriolic debate raging since 1997 when Sun sued Microsoft alleging violations of its Java license terms. With a trail of litigation which includes U.S. and European antitrust regulators, the announcement is nothing short of astounding. Yes, it remains to be seen whether years of mistrust will dissipate and lead to true cooperation, but this is not simply a truce between two rivals. The Wall Street Journal quotes Tony Scott, Chief Technology Officer for General Motors, as saying “What we try to do is educate them on the real pain customers go through when you have multiple incompatible standards and technologies.” Instead of customers being forced to figure out (and pay for) solutions to interoperability and compatibility problems, vendors are now being pressured to do so. Is this the beginning of a trend? Too soon to tell, but this truce is a big deal—Mr. Scott represents a customer!

And now, number 2. Perhaps we have become less concerned about providing information to “friendly sites,” but Yahoo! has introduced a “paid inclusion” product which allows advertisers to guarantee their sites will show up in searches—although payments do not change the order in which results are displayed. Not to be outdone, Google’s new “G-mail” will have context-based advertising derived from—are you ready—a scan of key words in G-mail received by subscribers, which customizes advertising based on information in the e-mail. G-mail a friend about bowling and you may see a pop-up coupon for a local bowling alley. Marketing professionals and advertisers point to the fact that G-mail is an opt-in service and consumers have shown they are willing to give up privacy to obtain greater levels of convenience.

For the record, cookies were invented to allow you to have a shopping cart and accumulate items when going web shopping. Fast-forward past cookies to
spammers, phishing, pop-ups, invisible GIFs, web bugs, intelligent bots and spyware to this latest announcement. Google can now accumulate a detailed
dossier of individual consumer preferences and the contents of e-mails. No one is suggesting Google would abuse such information or that subscribing is not
truly voluntary, but not only do we know what you did last summer, soon we may also be able to tell you what you are planning next summer.

The Buzz About Sourcing: Out, Near, Offshore, Strategic, Corporate, In...

Not a day goes by that outsourcing isn’t in the news. Not just news, but NEWS. The Wall Street Journal, Information Week, The New York Times, Financial Times, CIO Magazine, American Banker. “Press 1 for Delhi, 2 for Dallas,” “Prove It’s Secure: Legislators Want CIOs and Service Providers to Show that Customer Data Sent Overseas is as Safe as it is at Home,” “Global Talk Gets Cheaper—Outsourcing Abroad Becomes Even More Attractive as Cost of Fiber-Optic Links Drop,” “Offshore Outsourcing: How to Safeguard Your Data in a Dangerous World,” “Weighing the Benefits of Offshore Outsourcing,” “Big-Bank Perspectives on Offshore Outsourcing,” “Lesson in India: Not Every Job Translates Overseas,” “Business Coalition Battles Outsourcing Backlash,” “More Work is Outsourced to U.S., Than Away From It, Data Show,” “Offshoring Can Generate Jobs in the United States”—well, you get the picture. Senator Liz Figueroa (D-Calif.) is seeking legislation prohibiting consumer medical and financial data from being sent overseas without assurances of strong privacy safeguards (remember the U.S. position on the European personal data directive?). Even Alan Greenspan has weighed in, cautioning, “These alleged cures would make matters worse rather than better.”

Both providers and customers consistently articulate several key themes. Many third-party providers can do it cheaper, faster and at higher quality - processing is their business - not yours. Third-party providers survive by keeping up with technology, training personnel and responding to changes quickly and efficiently - often a secondary priority and a headache for other companies. Further, companies are recognizing that allowing a third-party to perform functions and assist in providing services rarely requires relinquishing control or responsibility - in fact, proper management increases, and almost always in a positive way.

Like it or not, outsourcing is likely to remain a significant weapon in management’s arsenal of choices in managing business—an alternative available for consideration as requirements change. Although perhaps obvious, an outsourcing transaction should take into account the following key issues:

  • All or Some?—Assess needs, evaluate priorities, costs and requirements, and understand which functions, process or operations should be outsourced and which retained. Outsourcing is a tool, not an end in itself.
  • Control, Flexibility & Cost—A delicate balance considering the difficulty and implications—especially when entrusted to a third party, or if you are a third-party provider. Agreements must address varying objectives, priorities, customers and suppliers—hardly a trivial exercise.
  • Human Resource—Outsourcing affects employees: seniority, pensions and benefits, decisions involving termination, changes in salary, and even relocation. Immigration issues arise when moving people around—even for temporary training or other assignments.
  • Performance Standards—Defining and prioritizing standards is difficult enough internally and fixing accountability in a contract even more so.
  • Corporate Compliance, Privacy & Security—These issues require careful examination. Functions can be outsourced, but rarely can the responsibility.
  • Relationship Management—Customer and provider must develop a solid working relationship—in operation and spirit. From shifting priorities to changing performance standards—there is no substitute for a strong, effective team approach.
  • International—Global outsourcing gives rise to issues relating to currency fluctuations, differing intellectual property protections, privacy and transborder data flow, surveillance and security, governing law, dispute resolution, and interpretation and enforcement of contracts in local courts; and
  • Insourcing—Sometimes forgotten, no decisions are permanent. Leave room to re-evaluate or move functions from one service provider to another in an amicable transition process. Businesses, operations, requirements and costs change—don’t lose flexibility.

Did you know Reed Smith has significant experience in handling sourcing transactions—near, offshore, strategic and otherwise? Did you know Reed Smith may be the only law firm with attorneys here and abroad who have handled major international and multinational outsourcing transactions for financial institutions, airlines, health care providers, telecommunications and manufacturing companies, to name a few? Did you know Reed Smith lawyers are adept at looking at both the purely legal and contractual issues, as well as counseling clients for success and guiding clients through the process?

Whether understanding sensitivities of internal employee concerns, or preparing RFPs and negotiating and managing these complex contracts, Reed Smith lawyers understand and handle risks and issues new and unknown to many organizations—a host of human resource and performance issues, assignment, immigration and employment, warranty, insurance, indemnity and liability questions, growth, change control, customer service and termination issues. How to handle a migration plan? What about our people? What if I can’t get the service I need? What if my needs, my systems, my operations or my processes or my business changes?

The implications are large, the risks enormous and the complexity overwhelming—don’t skimp on retaining people with the right expertise, including lawyers. Want to know more? Want to schedule a customized in-house seminar? Contact Joe Rosenbaum in the U.S. at jrosenbaum@reedsmith.com and let us help you.

Avoiding a Legal Disaster: Déjà Vu All Over Again

In April 1995, Datapro Reports on Information Security published a Disaster Avoidance brief (IS38-200-101) entitled “Avoiding a Legal Disaster: Business Continuity Planning for Multinationals.” In that paper, the author analogizes a famous 1932 “technology” case decided by the Second Circuit Court of Appeals in the United States, to the growing potential liability of users in managing their technology and information security resources. Specifically, the article states that “In 1932, a famous case entitled The T.J. Hooper (60 F.2d 737; 2nd Circuit, 1932) held that the failure to take advantage of existing and available technology—even though it was not in widespread or common use—was not evidence that the defendant’s duty to take reasonable care had been fulfilled. By analogy, when a disaster occurs, it will not be a defense to argue that a recovery or security system or preventive measure is not commonly in use, especially if using it would have averted the disaster or minimized the loss.”

The article, which focuses on what organizations can do to minimize risk, goes on to note that, “The more reliant business and operations become on technology, the more available preventive and risk management tools become, the less excusable a failure to implement meaningful measures and exercise due diligence over company assets will become to government, employees, customers, suppliers, and shareholders—all potential plaintiffs.”

Now this fact and the author would probably be relegated to obscurity but for an interesting article on I.T. Litigation that has just appeared in the February 1, 2004 issue of CIO Magazine, entitled “Courts Make Users Liable for Security Glitches.” The author notes that an interesting turning point arose in the wake of 9/11 when, in October 2001, Hartford Insurance removed computer damages from its general commercial liability policy coverage. The article goes on to cite three recent cases which are beginning to look a lot like a legal trend in this area. First, a case in which Verizon asked a court to order the State of Maine to refund money because Verizon wasn’t using Maine’s network while Verizon was “down” because of the “Slammer” worm. Verizon had not implemented a Slammer patch and last April the Court ruled that while one may not be able to control a worm attack, they are foreseeable—no refund (Maine Public Utilities Commission v. Verizon).

In Cobell v. Norton, the U.S. Department of the Interior’s website and computer security became an issue in a case involving benefits allegedly and to American Indians. The Court was sufficiently irritated by the Department’s conduct related to security audits, that the Judge actually commenced contempt proceedings! Finally, in the last case cited by the article, the American Civil Liberties Union hoped to avoid liability for accidentally publishing donor information by pleading it had outsourced its security to a third-party vendor. Although the case settled, it is doubtful such a defense would have worked and it is almost certain regulated companies will not be able to escape accountability for compliance by outsourcing regulated activities—the responsibility will remain theirs!

There appears to be an increasing, and not-so-subtle, shift away from the notion that programming errors related to security breaches, computer viruses, worms, logic bombs and other malicious code or hacker and denial of service attacks are somehow equivalent to unpredictable natural disasters like earthquakes or fires—thus not subject to a “fault” analysis, but more appropriately covered by ‘accident’ insurance. Indeed, these and other cases arising in the courts treat breaches of security as fair game for negligence lawsuits—especially where damage has been done to a consumer (e.g., identity theft) or where the assets of a company—tangible or intellectual property—have been compromised. As noted in the 1995 article, liability for failure to implement available security is likely to increasingly hold both providers and users of technology liable where negligence can be shown—or even reckless disregard where safety or the protection of assets are concerned. You can read the CIO Magazine article here and, by the way, the obscure author of the 1995 Datapro article can be reached at jrosenbaum@reedsmith.com should anyone wish to see a copy or discuss the issues raised—then or now!

Got Indemnification!

In a world increasingly dependent on information, technology and intellectual property rights, contract indemnities—especially if you are an innocent third party—can be critical. “Innocent” means you are a licensee or user of technology (e.g., software, database information) from a provider or licensor and a third party claims that your provider or licensor has wrongfully furnished you with intellectual property that belongs to them. While space doesn’t allow us to go into the finer points of contributory infringement, third-party claims and the distinctions between insurance, breach of representation, and warranty or contract claims and an indemnity, there is enough space to alert you to the fact that a third-party indemnity claim—even if you, the user/licensee, have not knowingly done anything wrong—is disruptive and unnerving at best and at worst can lead to damage claims. For example, the third-party, if successful, will require a new license agreement with you and new license fees (remember those license fees you already paid your current licensor/provider?). Caveat emptor (or, in this case, caveat licensor)!

CAN-SPAM: It's Not Phat!

Federal Commercial E-Mail Legislation Takes Effect A major change in the law that affects privacy and commercial e-mail on the Internet took effect on January 1, 2004. The CAN-SPAM Act of 2003 doesn’t simply establish an “opt-out” framework for commercial e-mail, it completely pre-empts state law. Although an individual consumer doesn’t have the right to sue an offender under the Act, the Federal Trade Commission, along with the Attorneys General of each state, do. So what should you know?

First, the Act only applies to commercial e-mail—an e-mail whose primary purpose is promoting a commercial product or service. Although the FTC has not yet promulgated any regulations under the Act, simply because an e-mail has a URL link to a commercial website or refers to product or service doesn’t make it commercial e-mail. There are, of course, certain obvious exemptions built into the law. Product safety recall information or e-mails notifying you about changes or important notices concerning your subscriptions, memberships, purchase confirmations, accounts or e-mail related to your employment—all of these are so-called “transactional relationship messages” where the main purpose is communication related to a commercial transaction, rather than promotion or advertising.

Second, what does the law require. Starting January 1, 2004, all commercial e-mail (even if an existing business relationship exists and whether or not the e-mail was solicited or not) must contain a clear and conspicuous notice that a consumer can opt out of future e-mails and provide a web-based means to do so. A consumer’s request to opt out must be honored within 10 business days and marketers can’t sell or share the e-mail addresses of those who have opted out. The e-mail must also clearly identify itself as an advertisement—unless a consumer has specifically asked to receive commercial e-mail from a particular commercial entity. Third, the e-mail must contain a postal, physical address of the sender. Although it is not yet clear if a post office box is enough, the less-risky approach is to have a street address.

The Act has a number of other requirements related to labeling—for example, the subject (header) must accurately reflect the body or content of the message and the sender (the sponsor of the promotion) must be identified. Although the Act preempts state commercial e-mail laws, beware of the fact that state fraud, trespass and certain consumer protection laws can still apply.

Violations of the CAN-SPAM Act are criminal offenses and involve both fines and potential jail time upon conviction. As with most Federal crimes, aggravating factors increase the penalties and implementing good faith and reasonable measures to attempt to comply with the Act can lessen them. These penalties can be serious—jail-time of up to five years, $250 per e-mail up to $2 million in fines (which can be tripled up to $6 million if aggravating factors are present) and all computers and software used in the commission of the crime can be forfeit.

Although the primary purpose of Legal Bytes is to enlighten and inform you, it obviously does promote Reed Smith and encourages you to call us when you need legal support. Accordingly we will always give you the opportunity to opt out of receiving our publication by email and when we send you an e-mail, it will be clear as to what it is and who is sending it. This is not just the law, it’s good practice.

For the Record

The best Court Order in recent years can be found in the Citizens Coal Council v. Babbitt case (Civil Action No. 00-0274 (D.D.C. May 2, 2001)):

The recent heated exchange between plaintiffs and intervenor on the subject of whether or not the [National Mining Association] should have filed a statement of material facts pursuant to Rule 56.1 or not, whether the Court has granted plaintiff’s motion for leave to file supplemental authority or not, whether the Court’s own previous order is “authority” or not, etc., betrays a startling lack of sense of humor, or sense of proportion, or both, especially since it appears to be agreed that the facts relevant to this case are all in the administrative record. It is…ORDERED that NMA’s Rule 56.1 statement is not “rejected,” that it will remain of record, and that it may remain as “context” for NMA’s arguments. And it is FURTHER ORDERED that the parties lighten up.